By: Daniel L. Weiss and Iseult Derème
The very essence of sport is competition. Most sporting activities require cooperation and rules to turn the efforts of individuals into organized teams, contests, leagues and championships. On December 16, 2020, the General Court of the European Union (the “General Court”) issued its Judgment in International Skating Union v. European Commission that provides some clarity to the circumstances in which a sports federation oversteps the bounds of legitimate behavior and to have acted in breach of the competition law rules of the European Union, which are similar to the antitrust laws in the United States.
The International Skating Union (the “ISU”) is the sole international sports federation recognized by the International Olympic Committee and is responsible for the regulation and administration of figure skating and speed skating on ice at the worldwide level. The ISU, like many international sports federations, promulgated eligibility rules for athletes requiring them to participate only in events authorized by the ISU and/or its members. The ISU had broad discretion regarding which third-party events to authorize, and required a solidarity payment in an amount to be determined on a case-by-case basis. At the relevant time, athletes who participated in events not pre-authorized by the ISU could face up to a lifetime ban on their eligibility to participate in ISU events. Athletes could appeal against ineligibility decisions exclusively to the Court of Arbitration for Sport (“CAS”) in Lausanne, Switzerland, and event organizers that had their authorization request denied could likewise appeal to CAS.
In 2014, two Dutch professional speed skaters filed a complaint with the European Commission (the “Commission”) alleging that the ISU’s eligibility rules violated competition laws. The two speed skaters claimed that they were prevented from participating in an unauthorized speed skating event because of ISU’s then-existing potential lifetime ban. In 2016, the ISU changed its eligibility rules to, among other things, reduce the sanction on athletes who participated in unauthorized events (but maintained the possibility of a lifetime ban). Nevertheless, in 2017, following an investigation into the complaint, the Commission issued a decision finding that the ISU’s eligibility rules constituted a clear breach of competition law.
According to the Commission, the ISU’s eligibility rules had an anticompetitive purpose in the sense that they unjustifiably restricted professional athletes from freely participating in international sporting events organized by third parties. The Commission found that the main purpose of the rule was to protect the economic interests of the ISU. By restricting the freedom of athletes to engage in other sports events, and by applying nonobjective, nontransparent, and discriminatory criteria to the authorization of third-party events, the ISU prevented the organization and commercial exploitation of competing events. This foreclosed any (potential) third-party event organizers from the market and prevented competition between rival events.
The Commission also found that the severity of the sanctions on individual athletes for noncompliance was disproportionate, particularly in light of the athletes’ average career span (eight years) and the fact that the ISU organizes and controls the athletes’ participation in the most important international events for this particular sports discipline (that is,the Olympic Winter Games, the European and World championships, and the World Cup).
As far as the arbitration rules were concerned, the Commission recognized that arbitration is generally an accepted method of resolving disputes, and that agreeing to an arbitration clause did not in itself amount to a restriction of competition. In this particular case, however, the Commission found that the exclusive jurisdiction of CAS whose decisions were final and binding reinforced the restriction of the athletes’ commercial freedom and the foreclosure of third-party event organizers.
The Commission directed the ISU to refrain from continuing its enforcement of the anticompetitive eligibility rules and pre-authorization system. The Commission, however, noted that the ISU could remedy its anticompetitive practices without entirely abandoning the concept of a pre-authorization system.
The ISU appealed the Commission’s decision to the General Court. As a threshold matter, the General Court relied on several previous European Union precedents to find that there is a potential conflict of interest where a sports federation has both the powers of a regulator (by being responsible for the adoption of membership rules and setting the conditions for participation in events) and is at the same time making commercial decisions in relation to those events. The General Court confirmed that such a conflict of interest gave the ISU obvious competitive advantages over its competitors, and was likely to give rise to anticompetitive effects.
The General Court further found that ISU’s eligibility rules and pre-authorization requirements were disproportionate and not justified by their alleged legitimate objective, namely the integrity of the sport and the application of common standards to all events happening in this discipline. The General Court noted that the ISU had failed to issue clearly defined, transparent, nondiscriminatory criteria to ensure that third-party event organizers’ authorization requests were fairly evaluated. A broad grant of discretion to the ISU could lead to the ISU denying authorization to third-party events on nonlegitimate grounds.
That said, the General Court recognized that the protection of the ISU’s economic interests is not itself anticompetitive. When combined with the integrity of the sport, “the pursuit of economic objectives is an inherent feature of any undertaking, including a sports federation when it carries out an economic activity.”
Nevertheless, the General Court held that in view of the average duration of a skater’s career, the ISU’s penalties that ranged between five years and a lifetime ban for an athlete competing in an unauthorized event were manifestly disproportionate to the ISU’s objective of protecting the integrity of the sports discipline. The General Court found that such a significant sanction “may dissuade athletes from participating in events not authorized by the [ISU], even where there are no legitimate objections that can justify such a refusal, and, consequently, is likely to prevent market access to potential competitors who are deprived of the participation of athletes that is necessary in order to organize their sporting event.” The General Court also noted that the system of penalties was not clearly set out, and thus presented a risk of arbitrary application of the penalties.
Further, the General Court agreed with the Commission that the ISU’s rule requiring third-party event organizers to pay a solidarity payment that would be used to finance only its own events and those of its members was not appropriate. The General Court stated that a federation may legitimately decide which events to finance, but a blanket rule in which solidarity payments may be used to finance only the ISU and its members’ events did not promote undistorted competition between competitors.
The General Court, however, disagreed with the Commission regarding the CAS arbitration clause. The General Court dismissed the Commission’s finding that the exclusive arbitration procedure constituted an aggravating factor by making the ISU’s infringement more harmful. Critically, the General Court noted that even though the provision stated that CAS jurisdiction was exclusive, the arbitration provision did not foreclose in its entirety an athlete’s right to seek redress from the judicial system or the European Commission when applicable.
The General Court’s decision, which remains subject to appeal, has long been awaited due to its significance for the sports federation and its athletes at issue, and sports in Europe generally. The ultimate result is not unexpected and largely in line with previous case-law. Notably, both sports federations and athletes can claim victory.
The General Court found that pre-authorization systems and eligibility rules by sports federations are not, in themselves, prohibited. In addition, the general acceptance of economic interests and solidarity considerations of the sports federation points to more federation-friendly future decisions. Moreover, the General Court has not sought to challenge the traditional appellate hierarchy established by many international sporting bodies, which choose to settle their disputes either through litigation or arbitration in institutions lying outside the European Union. From the perspective of sports federations, the General Court has approved a sports federation’s use of pre-authorization systems and only took issue with the details of such systems.
While athletes may not have achieved a wholesale change to sports federations’ pre-authorization systems and eligibility rules, sports federations can no longer install anticompetitive and draconian pre-authorization systems and eligibility rules to the detriment of athletes. This should provide more opportunities for athletes to benefit from their talents. Indeed, representatives of athletes have stated that “[t]he judgement is like opening the Berlin Wall for athletes” and that it puts significant limits on sports federations.
The specific limits on sports federations, however, remain undefined. The decision makes clear that pre-authorization systems need to be justified on the basis of objective, nondiscriminatory and transparent criteria and eligibility rules must be proportionate to achieve the legitimate objectives of the sports federations. It can therefore be assumed – as had already been suggested by the Commission – that pre-authorization systems and eligibility rules can be maintained if they do not unjustifiably restrict athletes’ rights to participate in competing sports events. The outer boundary of when pre-authorization systems and eligibility rules transform from the proper exercise of a sports federation’s authority into an anticompetitive, unlawful restraint of trade has yet to be determined.
Indeed, after the Commission’s decision, the ISU revised its criteria for authorizing third-party events and its eligibility rules to further reduce the potential sanction on athletes who participate in unauthorized events, which now range from a warning up to a two-year ban. While the ISU’s new pre-authorization criteria and eligibility rules have certainly moved in the direction of being consistent with the proper exercise of a sports federation’s authority, whether it is enough to comply with the test set forth in the General Court’s decision will have to be explored in the future.
It also remains unclear how the particularities of each sporting discipline will affect whether the federation’s pre-authorization systems and eligibility rules comply with competition laws. For instance, the General Court relied on the average length of a skater’s career when evaluating the reasonableness of the ISU’s rules. Because the average length of an athlete’s career varies between different sports, which sanctions are deemed proportional and which ones are not may vary across sports.
In the years to come, athletes and sports federations will continue to work on the correct and precise delineation between which pre-authorization systems and eligibility rules comply with competition laws and those that do not.
Daniel L. Weiss is of counsel in the Los Angeles office of Gibson, Dunn & Crutcher LLP and Iseult Derème is an associate in the Brussels office of Gibson, Dunn & Crutcher LLP.