By Christopher R. Deubert, Senior Writer
On November 7, 2023, King Charles gave his first King’s Speech, a ceremonial event in which the monarch reads a speech prepared by the government outlining its plans for the upcoming parliamentary year. Putting aside its ridiculousness to American ears, the speech contained other news of potential concern to lawyers working in sports – the U.K. government’s intention to pursue legislation creating an independent regulator to oversee English football (soccer). The proposed legislation is not only concerning to those who value the free market but also fails to learn from the operation of American sports leagues.
The Government’s Proposed Regulator
On February 23, 2023, the U.K. Department for Culture, Media & Sport released a report entitled “A sustainable future – reforming club football governance.” The report, from the Department for Culture, Media & Sport, responded to two principal concerns: (1) a series of bankruptcies and near bankruptcies by English clubs; and (2) the proposed European Super League, which threatened to draw the best English clubs farther away from the traditional English football system in which clubs can be promoted and relegated through multiple levels. The proposed “Regulator” would license and regulate the 116 clubs in the top five tiers of English football, including through close and regular inspection of owner and club financials, with the authority to intervene and sanction if necessary.
The government solicited feedback from all 116 football clubs, the leagues themselves, fan groups, and industry and legal experts. Then, on September 7, 2023, it published its response.
As might be expected, there were considerable concerns about the introduction of the government into a heretofore private, self-regulated enterprise. The introduction of such a comprehensive government regulatory scheme merits scrutiny under free market principles, particularly in the lands of Adam Smith and Margaret Thatcher. It is generally accepted in classical liberal economic thinking that the state should only intervene where there has been a market failure, i.e., where the free market is unable to produce a socially desirable outcome. For example, governments regulate pollution and the environment because a world in which individual actors act in accordance with their best interests is unlikely to produce the clean air and water that we collectively desire.
Indeed, the U.K. believes there has been a market failure in this instance. In the reports, the government argues that “[g]overnment intervention is needed” because “[t]he free market does not properly account for the full social value of clubs to their fans and communities, and industry self-regulation has remained inadequate despite countless opportunities to reform, and plenty of time to do so.” English football apparently is too important to let fail.
The government nevertheless was sensitive to the concerns of regulatory overreach. To that end, the government said that the Regulator would have three primary purposes: (1) club sustainability; (2) systemic sustainability; and (3) cultural heritage. Its three secondary duties would be (1) domestic competition; (2) international competitiveness; and (3) investment. On this last point, the government recognized “the concern that heavy-handed, overly interventionist regulation could deter investment” but pledged to adopt a flexible and sophisticated regularly framework that would “provide greater clarity and market certainty to investors into English football.”
As to its primary duties, the Regulator will establish four threshold conditions of a license for operating each club: (1) appropriate financial resources; (2) suitable owners; (3) fan interests; and (4) approved competitions. The conditions are meant to ensure that only individuals with “sufficient integrity, honesty, financial soundness, and competence” own and operate clubs. The Regulator will also “set a minimum standard for fan engagement” and be required to approve any sale or relocation of a club’s stadium. The Regulator will not, however, involve itself in “matters relating to sporting integrity or competition,” leaving those to the “existing football authorities.”
Failure to Learn from America
The claim of a market failure should ring hollow to American sports professionals. One of the major reasons cited in the report for the financial problems of English clubs is player salary costs –“unsustainable wage-to-revenue ratios” as described by the government. The clubs engaged in an arms race that many of them could not afford and which was financed either with debt or the cash of questionable characters. The government’s initial report was dismissive of salary caps, claiming that they “would not build resilience to shocks into clubs’ finances and operations.” However, neither of the lengthy government reports once mentioned American sports leagues or the fact that they have successfully implemented a range of salary cap or control schemes.
More specifically, the reports do not mention the way in which American sports have largely engaged in successful self-regulation: collective bargaining. American sports leagues are, in large part, governed by the terms of the collective bargaining agreements negotiated with their counterpart players unions. In these agreements, the clubs are able to create rules that restrict player salaries to levels which the clubs believe are affordable. While such rules would ordinarily be subject to antitrust scrutiny, generally speaking, when they are negotiated with a union they are protected by what is known as the “non-statutory labor exemption.” In exchange for these restrictions, the players generally get a guaranteed share of the leagues’ revenues and other benefits. As a result of this system, the clubs remain financially healthy and there is a shared purpose in increasing league revenues.
This model seems available to English football, though Brexit has complicated matters. The right of workers to unionize and bargain collectively is protected by both U.K. law and the European Union’s Charter of Fundamental Rights. Consequently, unions are commonplace in English society as are the labor agreements they negotiate with their employers. Indeed, English players are unionized through the Professional Footballers’ Association (PFA). Finally, E.U. law has recognized a non-statutory labor exemption and the need to evaluate sports organizations more deferentially under antitrust/competition law.
Nevertheless, E.U. competition law generally ceased to apply in the U.K. on January 1, 2021. Instead, the U.K. has reverted to operating under its 1998 Competition Act, for which there has never been any type of recognized exception related to sports. Be that as it may, the case for some type of exception for English football is strong, particularly if U.K. courts and regulators were to examine the American and E.U. law on the issue. More specifically, there is a strong legal basis for exempting player salary caps from competition law if they are agreed to by the PFA.
The Next Steps
The King’s Speech was a preview of intended proposed legislation in Parliament, that will likely revisit many of the concerns raised. Seemingly for cultural reasons, the PFA and English clubs do not operate under collective bargaining agreements. But to avoid government intervention and regulation, it seems they should reconsider their legal options.
