Updates

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?

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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.

 Jamie Singer
Partner, Onside Law

 

Widening the Goalposts of the Unfair Prejudice Rule

Onside Law associate, Marc Rimmer, writes on the unfair prejudice rule in the context of a minority shareholder in a football club.

Unfair prejudice of a minority shareholder in a football club

The recent case involving Blackpool Football Club serves as a useful reminder of what sorts of behaviour can constitute unfair prejudicial conduct and the actions that the courts can take in the event of such conduct.

What is unfair prejudice?

Unfair prejudice in the United Kingdom is a statutory form of action that may be brought by aggrieved shareholders against their companyif they believe their company’s affairs have been conducted in a manner that is unfair and causes them prejudice or harm.

Section 994 of the Companies Act 2006 provides that: “A member of a company may apply to the Court by petition for an order…… on the ground (a) that the company’s affairs are being or have been conducted in a manner that is unfairly prejudicial to the interests of members generally or of some part of its members (including at least himself), or (b) that an actual or proposed act or omission of the company (including an act or omission on its behalf) is or would be so prejudicial.”

What happened in the Blackpool FC case?

It was found by Justice Marcus Smith that Owen Oyston and his son Karl, the owners of Blackpool football club, had paid £26.77m out of the club to companies they owned without the consent of other shareholders in the club, during and after the single season that Blackpool FC competed in the Premier League in 2010-11. Part of the total sum paid out of the club included £11m to a company owned by Owen Oyston, described in Blackpool’s accounts as a director’s salary, which was found by the court to be an “essentially gratuitous” payment to Owen Oyston. During this period of “illegitimate stripping” of the club, Valeri Belokon, a 20% minority shareholder, argued that he had been frozen out of the management of the club and he challenged the legitimacy of the millions the Oystons paid out to their own companies without his consent.

The Court ruled that the Oystons had “abused their majority powers to the detriment” of both Mr Belokon and Blackpool FC and that their behaviour had caused “fundamental breaches” of their duties as directors. It was found that improper payments had been made to the majority shareholders which could have been paid out as dividends and this had been done to bypass the need to seek consent from the other shareholders in the club, most notably Mr Belokon. It was held further that Mr Belokon had been entitled to be treated as an equal partner in the governance of the club by virtue of an unwritten ‘gentleman’s agreement’, something that had been completely disregarded by the Oystons. As a result, the petition for unfair prejudice brought by Mr Belokon was upheld and the Oystons were ordered to pay £31m to Mr Belokon for the compulsory purchase of his shares in the club. In finding in favour of Mr Belokon, the court was prepared to ignore the fact that Mr Belokon had been disqualified by the Football League from being a director following a conviction in his native Kyrgyzstan for money laundering. Since the ruling earlier this month,Blackpool FC have been put up for sale by the Oyston family, who have instructed their counsel to appeal certain aspects of the ruling.

What does this case mean for the future of the unfair prejudice rule?

The Blackpool FC case is a useful case study of the rights of minority shareholders and the remedies that are available to them where those rights are infringed. The court was keen in this case to highlight the importance of corporate responsibility and indicated that they will continue to exercise wide discretion to level the playing field in circumstances where majority shareholders are shown to be abusing their power by breaching their fiduciary duties and mismanaging company affairs.

The case is also a prime example of oral contracts (this one being concluded in a pub) being upheld by the courts where the circumstances are appropriate – an interesting contrast to the recent case involving Mike Ashley and the £15m deal that was also concluded in a pub with a former associate. In that case, it was found that no valid oral contract existed as the alleged deal had been made “during a heavy night of drinking” and the court ruled that no one would have reasonably thought that what Mr Ashley said in the pub was indeed “serious”. By contrast, the court found in the Blackpool case that Mr Belokon typically “transacted orally” and “did not tend to author documents” and the Oystons had also historically entered into arrangements on the basis of “gentleman’s agreements”. As a result, it was held that the necessary intention to create legal relations was present in the Blackpool case (aided by a lack of intoxication compared with the Ashley saga!) that was needed to constitute the existence of an oral contract.

Future of Snooker and Billiards – cue the Olympics?

Onside Law has advised the World Professional Billiards and Snooker Association on its recent establishment and launch of a new international federation for snooker, the World Snooker Federation (WSF), which is based in Switzerland.  The WSF’s goals include developing a closer relationship between the professional and amateur sides of the sport and securing a place for snooker and billiards in the Olympic and Paralympic Games programme.

Onside Law’s Chris Walsh (Partner), Harriet Leach (Senior Associate) and Ross Brown (Senior Associate) are continuing to advise on the matter.

Snooker image

Corporate Lawyer needed – 3-5 PQE

Onside Law is a market-leading specialist sports law firm with a head office in London.

Our clients are some of the biggest names in sport, including many of the leading national and international governing bodies, broadcasters, clubs, sponsors, investors and high profile individuals.

Our practice is thriving and we are seeking to bolster our team by recruiting a lawyer to assist with a broad range of corporate (entrepreneurial) work as well as some commercial matters. Prior sports/media or private equity experience is helpful, but not essential. Ideally you will have between circa 3-5 years of PQE although all candidates with demonstrable experience to fulfill the role will be considered.

Applicants are asked to submit a cover letter and CV by email to zoe.fitt@onsidelaw.co.uk by no later than Friday, 15 September 2017.

Spanish tax and image rights investigation – Stevie Loughrey speaks to CNN’s World Sport

Onside Law partner Stevie Loughrey speaks to CNN’s World Sport about the latest Spanish tax authority investigation into the use of image rights structures in football. Click here to watch the interview in full.

Stevie - CNN interview screen shot