Demarcating a fine competitive balance: Exploring the monopolistic rationale of sports governing bodies in India (Part 1)

 

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By-Rishika Mendiratta ( Founder and Managing Editor at KhelAdhikar)

The business of sports is the ultimate competition. It is 7 x 24 x 365 x forever. 

The commercialized world of sports is not only deeply embedded in our lives, it is also entrenched in various legal disciplines. Its interaction with labour laws, human rights law, administrative provisions, and intellectual property laws has always had legal professionals racking their brains time and again. Since the beginning of the 21st century, the commercial dimension of sports has been enormous. Owing to this, competition law and sports have always found themselves at interesting cross-roads which has often resulted in the interesting development and application of unique legal theories to the world of sports.

In this article the author has deliberated on the jurisprudential analysis of various principles and their application to sports. Such an analysis is essential to ensure that sports assimilate the largely commercial framework of the present times without compromising its social, cultural and educational importance. The next part will deal with the application of all these principles in landmark sports cases of India. Read it to master the fundamentals of competition law in sports.

The regulatory framework of sports administration

The uniqueness of the application of competition law to sports emanates from its characteristic governance framework. The two most important features are the pyramidal structure of administration and the consequent monopoly of sports governing federations.

Pyramid Structure of Sports governing bodies

 A pyramid structure of competitions is defined from the grassroots to the elite levels premised on organised solidarity mechanisms between the different levels and operators, the organisation of sport on a national basis, and the principle of a single federation per sport.

The importance of this system of governance is necessitated by the following advantages-

• It helps in maintaining singularity of governance principles and rules, both on and off the field (including the rules of play, anti-doping regulations, anti-corruption regulations etc.);
• It aids in the equitable distribution of revenue from the elite to the grassroots level, encouraging participation, development and competitive balance
• It assists in the prevention of conflict within the sport, essential for the selection of national athletes and teams, and the identification of champions at each level of the sport.
• It helps in preserving the integrity and uniformity of sports.
• It helps in safeguarding the health and best interests of the athletes

Thus the pyramidal structure of sports has led to the formation of natural monopolies of sports governing bodies as explained below.

Sports Monopoly – Natural or Abusive?

“Before the monopoly should be permitted, there should be a reason to believe – it will do some good for the society and not just the monopoly holders” – Lawrence Lessig

The monopoly of an enterprise or governing bodies implies that it is insulated from the market forces and at the same time can influence their conduct. This concept of natural monopoly as addressed by Adam Smith in his book Wealth of Nations arises when the necessity of certain sectors requires the enterprise to hold a dominant position within a geographic market, for that would be the most efficient way of allocating said resources.

Sports presents an uncanny duality. The ideal market position for executing bodies in sports administration is that of monopoly since businesses performing economic activities which are not sports related are better off with smaller or lesser competition. However, athletes and the teams surrounding them require competition to be successful, even to maximize their profits. Pure monopoly in the playing sphere would be a complete disaster. This situation is commonly known as the Louis Schmelling Paradox. Sports operates under different market conditions as compared to other industries. In the case of sports, monopolies are a must because otherwise, on-the-field competition would suffer if off-the-field co-ordination was subject to the same scrutiny as in ‘normal’ industries.

The distinctive features of sports governance model have led to the emergence of peculiar legal principles for the sporting sector. They have been widely used in judicial decisions and have been largely inspired by European jurisprudence. The next section of the article explains them –

Specificity of Sports

“Specificity is the soul of the narrative”- John Hodgman

The outcome of the pyramid structure of sports has resulted in ‘sporting exceptions.’ The application of this principle has taken the form of specificity of sport. This includes purely sporting rules such as selection of teams, formulation of rules of the sport etc. or, even the issues which have economic aspects such as the grant of various rights related to sports events or organization of league. The categories of specificities of sports can be delineated in two parts, specificity with respect to –

1. Sporting rules like separate events for men and women, limitation on the no. of sanctioned events in a year
2. Specificity with respect to the pyramid structure, the rule of one federation per sport, etc.

Initially, they were considered to be completely outside the purview of competition law. This approach has been completely transformed from the Meca Medina case where all measures whether purely sporting or not have to specify the test of “legitimate objectives” and “proportionality test”. Thus it has helped to ensure that the actions of the sports are not exclusively motivated by economic considerations, These terms have been elaborated below.

Legitimate objectives-

Sporting rules having economic effects are justified if they are in the pursuit of legitimate objectives. The confines of legitimate objectives include aspects such as rules relating to fairness of sporting competitions, the uncertainty of results, the protection of athletes’ health, the promotion of the recruitment and training of young athletes etc.

Example of legitimate objectives –

• A governing body seeking uniform application of anti-doping regulations across participants in its sport

Example of non-legitimate objectives –

• A governing body preventing any participation of athletes in events organized by new entrants and banning them for life should they participate in such an event. Such a decision is without the possibility of an appeal.

Test of proportionality–

This test is predicated on the necessity and the rationality analysis of rules formulated by sports governing bodies.  This is commonly known as the rule of reason approach in the American and the Indian legal system. The world ‘proportionality’ is more of a European usage. It looks at whether the regulations are in accordance with the outcomes that are aimed at.

For example, whether the conduct of the doping test at a particular time and place is in accordance with the objective of maintaining fair play in sports. Similarly, if there is a lifetime ban on athletes on participating in an unsanctioned event, such a measure is certainly disproportionate to the object that has to be achieved.  On the other hand, the requirement of the participating athletes to abide by the rules of the game is proportionate and within the reasonable regulatory framework of the governance bodies.  Although, the actual proportionality of the regulations can only be decided within the framework in which they are applied.

Thus it can be logically concluded that sports organizations can make regulations and engage in activities having economic undertones provided they pursue legitimate objectives in a proportionate manner.

Relevant Market Analysis

“Everyone is not your customer” – Seth Godin

A relevant market analysis is the pivotal element to begin any examination about the anti-competitive conduct. The definition of relevant market is essential to demarcate the scope of investigation and analysis.

The meaning and interpretation of relevant market is generally similar across all jurisdictions. It comprises of both the relevant geographic and relevant product market.  Relevant product market means  -“ market comprising of all those product or services which are regarded as interchangeable or substitutable by the consumer by reason of characteristics of the products or services, their prices and intended use” Relevant geographic market   includes  “a market comprising of the area in which the conditions of competition for supply of goods or provision of services or demand of goods or services are distinctly homogeneous and can be distinguished from the conditions prevailing in the neighboring areas”

It is indisputable that every sport has it its unique characteristics which differentiates it from other sporting or entertainment events. Sports sector comprises multitude of relationships. The best example to understand relevant market in sports had been elaborately enunciated in the Dhanraj Pillai and Ors v M/s Hockey India (Hockey India) case briefly discussed later in the article. As per this case, sports federations may be a seller of various rights such as media rights, sponsorship rights, and franchise rights associated with each event and correspondingly there would be a separate set of consumers for such rights. Also, the ultimate viewers of sports event are consumers of the final product that is a sports event. Additionally sports Federation requires services of players, officials etc. for staging an event which makes sports Federations themselves consumers as well. In a sports industry the market is constituent of two broad categories- sports activity producing sector and sports supporting sectors.

There should be less lee way while discussing the market for sports because of the limited inter-changeability of sports of one kind of sports from another. However, a narrower market definition will increase the chance of monopolies. Presently, it seems we are headed to broad based definition of sports markets. This is because the casual fan supersedes a sports fanatic by enormous numbers. Also the heavily commercialized and amusement quotient of sports because of the sheer increase in quantity of sports content has created a possibility for it to be grouped with other forms of entertainment as well.

Factors to be considered while analyzing the relevant market-

1. Demand side substitutability- It has to be seen whether there is another product which is a close substitute in the eyes or purchasers for that which is the subject of the suggested market. For example for the cricket players, BCCI is the ultimate authority for the authorization of tournaments. It cannot be substituted so there is no demand side substitutability.
2. Supply side substitutability- It has to be seen whether the supply of the concerned services can be provided by other market players. For example, in a scenario pertaining to domestic sports events, only the national federation can provide the required facilities.

• Underlying product or service- The nature of the products determines its interchangeability and consequently its market range. For example every sports is unique and commands its own fan following. It cannot be substituted with any other forms of entertainment or other sports as well.

Importance of relevant market analysis- An Indian perspective

The identification of relevant market helps in understanding whether there has been an abuse of dominant position. As explained previously, it is demarcated in accordance with the perspective of the consumer. A wrong understanding of the consumer base can enormously impact the decision of the case. The cases of Hockey India and BCCI case lucidly explain this proposition.

1. Surinder Singh Barmi v BCCI – Although the case has been discuss before on this blog, the main controversy in this case was with respect to the Media Rights Agreement. This was because it had been stated therein that BCCI prohibited from organizing, sanctioning, recognizing or supporting any other professional domestic Indian T20 competition which would be a competitor to the Indian Premier  League. In this case, the interesting aspect was the difference in the market analysis by Director General (DG) and Competition Commission of India (CCI).

The DG during its investigation considered the consumers to be the providers of various economic activities essential to the IPL. It was looking at the conduct of the BCCI in granting the various commercial rights to third parties and the consequent impact of the foreclosure of market. They identified the relevant market to be the market for “underlying economic activities which are ancillary for organizing the IPL”

CCI instead of building upon the main issue of grant of Rights by the IPL deflected its approach. Thus the market was no longer demarcate in accordance with the specific allegations. Instead it recognized the consumers as the organization of other professional leagues. It looked at the outcome of the Media Rights Agreement as being restrictive and detrimental to their prospects of coming up with similar rival tournaments. The relevant market was thus considered to be private/professional domestic league or events.

1. Dhanraj Pillai & Ors v M/s Hockey India (Hockey India case) –

They made a detailed and broad analysis of the relevant market. The main issue was the discriminatory and restrictive policy of sanctioning events by rival bodies and its detrimental effect on the players. The relevant market was defined to be the “market for organization of private professional hockey leagues in India” and the “market for services of hockey players”. This was because, CCI in this case emphasized on the point that while deciding the question of abuse of players vis-a vis the officials, the relevant market has to be delineated in accordance with the specific allegations.

If the CCI had considered the amalgamation of conflicting factors while giving a narrow definition of the relevant market then BCCI might have treaded on a different line of reasoning. Accordingly, although both the cases relied on the cases had largely similar scenarios, it resulted in contradictory decisions.  The varied analysis of relevant market led to a seminal difference in the outcomes. While BCCI was penalized for abuse of dominance, HI’s action were considered to be within the permitted domain of legitimate objectives of sports.

The above analysis clarifies the conceptual applications of various competition law principle to sports.  The nest part will explore the tryst between India’s sports sector and competition law.  There have been various cases in the past six months involving  chess, cricket and athletics governing bodies in the country that have explored the tryst of sports and competition law. Stay tuned as we will be shortly coming out with an article analyzing them.

 

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