Competition Law, Sport

The exploitation of Sports Media Rights: Whether EU Intervention strikes a balance between IP Protection and Competition in the market?

by Mohit Agarwal*

 

While Sports events generally do not attract protection under copyright or neighbouring rights of European Union Law, it does not imply that copyright and related rights have no significance in protecting the commercial interest of the sport organisers. The sport organising entities hold the right to broadcast the events through the mediums of wire or cable as granted under the Copyright Directive of 2001. It is a general practice to license such broadcasting rights to entities that professionally operate in the field on basis of contractual agreements.

This article aims to explain how sports media rights are managed and licensed by sport organisers and the compatibility of such licensing practices with EU Competition Law. The joint selling of sports media rights, territorially restrictive clauses in distribution and broadcasting licenses, and the problem of unauthorised/illegal live streaming will be addressed.

Nowadays, joint selling, as against individual selling, is how sports media rights are mainly marketed. Joint selling is an arrangement whereby the clubs entrust their media rights to their national or international sports organiser which collectively sells them on their behalf. While scrutinising the license agreements, the European Commission in its Decision 2003/778 (UEFA) held that joint selling agreements create efficiency gains and may be covered by the exception provided in Article 101(3) of the TFEU.

It was observed that joint selling acts as a single point of sale which is significantly more efficient, reducing the acquisition and transaction costs as against an individual sale of media rights by the teams/clubs. Negotiating with multiple teams/clubs to establish the same end product would mean high transaction complexities and costs for the broadcasters. A single sale outlet not only benefits the organisers, but also the licensee, who have certainty with regard to predictable commercial and programming plan for the whole season, reducing its financial risk considerably.

However, some commentators are in favour of regulatory intervention as joint selling may enable the teams/clubs to act as a cartel and thus restrict competition. Consolidation through collective selling grants the organiser, the market power to dictate the terms of the license, which may lead to inaccurate inflation in both upstream and downstream to the final consumers. The supply side substitutability in such a licensing agreement is zero or perfectly inelastic which creates an inequality in the balance of bargaining power. The licensee is markedly at a weaker bargaining position eliminating the freedom to negotiate the terms of the agreement.

The Commission’s decisions, however, declared joint selling of sports media rights compatible under EU Competition Rules, provided that strict conditions are respected. In some cases, an exception to joint selling is the ‘no single buyer obligation’. It is an intensified approach requiring that all packages of the valuable media rights are not sold to a dominant player in the downstream market. It was first implemented in the FAPL case and has being increasingly implemented in other national leagues. This obligation is considered an exceptional measure, justified when either at the time of licensing, a serious foreclosure risk already exists in the downstream market or when selling the rights to a single buyer would lead to securing a dominant position beyond the contractual period.

The Court of Justice in the Premier League v. QC Leisure held that a contractual provision aimed at reinforcing territorial scope (absolute territorial protection) of a license to a single Member State restricts competition under Article 101(1) TFEU. The Court held that such territorial exclusivity results in creation of artificial prices and in partitioning of the EU Internal Market which is against the very core of EU Law. Article 7 of the Portability Regulation makes any contractual provision prohibiting cross border portability of online content services unenforceable.

A restriction on passive sales is treated as a by object restriction which means that it infringes the Competition rules, without needing to demonstrate actual anti-competitive effects. Absolute territorial exclusivity restricts both active and passive out-of-territory sales, thereby partitioning the EU Internal Market and are prima facie violative of Competition rules.

However, sports organisers may disagree on this point, as they believe that territorial exclusivity in licensing of media rights is vital to maximise their return on investment by selling them in different territories. Territorial exclusivity grants the organisers, the opportunity to sell the licensing rights at different prices in different territories. For instance, if consumers’ willingness to pay for a certain product is positively correlated with their income, affluent consumers will be willing to pay more for the same product. Hence, a combination of territorial exclusivity and price discrimination becomes allocatively efficient. Price discrimination will increase the organisers profit, reduce the surplus of richer consumers and increase the surplus of relatively poorer consumers, maximising social welfare.

In recent years, a substantial increase of pirated and illegal live streaming of professional sports has resulted in considerable reduction of pay television broadcasting. Given the fact that it requires a sizeable investment to obtain such broadcasting licenses, unauthorised streaming enables such illegitimate hosts to free ride on authorised broadcaster’s rights. Such pirated streaming sites earn through click-advertisements.

The European Court of Justice interpreted Article 3(1) of the Copyright Directive in the TVCatchup case confirming that any unauthorised retransmission, through wire or wireless, is an infringement of the neighbouring right, granting the right-holders a right to damages and injunctive relief. While such an infringement gives rise to an action for relief and damages, the existing legal tools are ineffective in protecting right-holders from unauthorised rebroadcasting (parallel broadcasting) especially online of live matches.

The unauthorised dissemination of content and information, usually online, is a major roadblock for the content industry such as movies, music, sport broadcasting, etc. However, a legal remedy that can effectively block the availability of pirated music or videos, it is deemed inadequate for illegal broadcasting of sports events. A sport event is of highly perishable and volatile value as compared to other traditional content and information. This is because the transmitted content is time sensitive as the value of the broadcast tends to be zero after the end of live transmission. Therefore, it requires differential treatment from other sectors.

Interestingly, the Irish Commercial Court has granted a first of its kind remedy and compelled internet service providers (ISPs) to block illegal transmission of matches of Premier League in real time. Latest advance technology will be used to possibly block streams across different platform in one blow. The judge held that such unauthorised streaming undermines the value of FA’s rights and if allowed to exist, may cause an impact on wider sporting community.

Another remedy that can potentially end the illegal streaming is to target the advertising revenue of such websites. Blocking of such advertisement and other associated revenues, the business models can be halted. It remains to be analysed the effectiveness of such remedy.

In conclusion, competition authorities play a cardinal role in the sports sector, more importantly, in sale of broadcasting rights. While there are different protection regimes across the EU, sports organisers can rely on EU law. However, the Commission still needs to develop an immediate and effective enforcement remedies that suit the sports sector.

 

*About the author

Mohit Agarwal is an Undergraduate Student at Gujarat National Law University, Gandhinagar. He possesses a keen interest in Competition Law & Policy and is an Editor at GNLU Journal of Law and Economics Blog.