Is it time to rethink our mistrust of common ownership of sports clubs?
Governing bodies of team sports take a very dim view of one owner taking significant stakes in two teams that compete (or even may compete) with each other.
The FA, UEFA, EPL, World Rugby, Premiership Rugby and EPCR all agree that the “potential” for collusion or foul play necessitates a ban on common ownership. When ENIC, an English investment vehicle for sports and media businesses, challenged UEFA’s rules on this issue, after it took stakes in AEK Athens FC and Slavia Prague, CAS confirmed that such restrictions, although blunt and restrictive, were “necessary and proportionate” to protect against any perception of collusion or conflicts of interest in football.
On the face of it, this all sounds perfectly reasonable. Who wouldn’t want to do everything possible to prevent unfair collusion between teams competing against each other? The thing is that all of these governing bodies already have detailed rules prohibiting such collusion. The Common Ownership prohibitions go one step further, to prevent investors already in the sport from a further investment on the basis that this makes it “more likely” rules will be broken.
This is quite a difficult philosophical position to justify. To what extent can, and should, society prohibit things that “might” make a rule more likely to be broken? Where do you draw the line? Should alcohol be banned from all sports stadia as various offences might be more likely to take place if it is available?
If we compare the position in other industries, we find that common ownership of competitors is, in fact, common. Competing brands are regularly under the same ownership, whether the household brands of Unilever and Proctor and Gamble, the domination of beer brands by InBev or Volkswagen’s ownership of Audi, Porsche, SEAT, Skoda and VW. Even highly regulated industries such as pharmaceuticals allow companies to own multiple competing brands. GSK owns four different pain relieving brands, all of which compete. Clearly breaches of competition law, distortion of free markets and collusion are more likely where competing brands are commonly owned. However, significant “potential risks” are tolerated before thresholds are reached where competition authorities take action to block mergers or acquisitions in a sector.
Returning to sport, many governing bodies “copper bottom” their common ownership protections by automatically determining an owner as failing their “fit and proper person test” simply because they have a significant stake in another club. Given the quality of some of those that have passed this test, is it equitable to fail someone simply because they have the passion, interest and financial resources to invest in more than one sports team? Could we take a more reasoned and forensic approach to whether an individual is fit and proper to influence a sports club?
Earlier this year we worked with Mohed Altrad, owner of French rugby club Montpellier Hérault Rugby, to see if protections could be put in place to allow him to take a significant stake in Gloucester Rugby Club.
Consent from various rugby authorities was needed as Montpellier and Gloucester could have qualified to play each other in either the European Rugby Champions Cup or European Rugby Challenge Cup. Our aim was to mitigate the greater potential for collusion by enhancing transparency, governance and integrity protections. Gloucester and Montpellier committed to put in place codes of conduct and ethics as well as new governance models to a standard far higher than the rules required. In addition, commitments on transparency and independent audits, again far in excess of those required by existing rules, would allow the authorities much greater scope to police and enforce the rules against collusion that were already in place.
In Montpellier, Mohed Altrad’s investment had led to new training facilities, used by both the club and the local community, a refurbished stadium and a match squad now sitting second in the Top 14. Gloucester have been looking for additional investment ever since Martin St Quinton bought out Ryan Walkinshaw. The funds would have led to improvements in the stadium and pitch, as with Montpellier, to the benefit of the city and community, as well as investment in the playing squad. In return Altrad would use the investment and sponsorship to develop their UK business from a hub in the City of Gloucester.
Despite the potential benefits of the investment for Gloucester, its community and English rugby and all of the commitments re integrity and transparency, the potential risk of collusion was the justification for some members of Premiership Rugby to veto the investment. As a consequence the deal fell away.
According to the Times only one of the 12 Aviva Premiership rugby clubs mustered a profit last year and a third of them are currently for sale or looking for substantial investment. With such a dearth of willing investors in the sport shouldn’t we do everything we can to facilitate investment when offered from legitimate sources?
If robust and realistic checks and balances can be put in place to protect against collusion and conflicts of interest, surely the question should be “how can we permit the deal”? Not “why should we”?
Sporting clubs are under greater scrutiny than ever before in the social media age and audits and data management are becoming more and more sophisticated. Governing bodies could, perhaps, have faith in the rules they so carefully craft and invest in the policing and enforcing of those rules….rather than excluding much needed investment over what “might” happen.
Partner, Onside Law