Sports governing bodies and leveraging of power: what is the appropriate governance model?

• Author: Pendlebury, Adam

Introduction

The commercialisation of sport has added a new layer of complexity to the role of the sports governing body. Their traditional regulatory function has assumed added significance as their regulatory choices affect the commercial freedoms of economically active sports stakeholders such as athletes and clubs. Governing bodies also commercially exploit their respective sports through, for example, the sale of media rights or the conclusion of sponsorship agreements. This paper seeks to explore modern sports governance by investigating whether governance standards in sport have kept pace with the commercially generated changes to the functions of sports governing bodies. In particular, the paper explores whether the traditional regulatory function of sports governing bodies is capable of being employed to leverage unfair commercial advantage at the expense of stakeholders subject to their regulatory control. Initially, the paper interrogates the proposition that problems with governance standards in sport, such as leveraging and conflicts of interest, have emerged as a consequence of an assumption of immunity by the governing bodies. This assumption has three sources. First, the European model of sport has established the governing bodies as monopolies. Second, they have a duty to devise rules designed to protect the specificities of sport and third, they have been afforded a wide margin of discretion by the state in order to carry out these functions. The paper then adopts a thematic approach to explore the conflicts of interest and potential leveraging. Finally it considers how a system of supervised self governance could be workable if appropriate standards of internal transparency and external accountability are adhered to.

The European Model of Sport

Many European sports are organised on a pyramid model. At the pinnacle are the international or world governing bodies such as the Federation Internationale de Football Association (FIFA). The international federations are the overall guardians of their respective sports and are responsible for setting rules, staging international tournaments and establishing the channels of responsibility between themselves and the other organisational units affiliated to them. Affiliated to the global federations are the continental federations, such the Union des Associations Europeennes de Football (UEFA), whose role is to take care of the sport at the regional level, ensure enforcement of global rules and to represent the interests of its members, the national associations. Whilst the formal relationship between FIFA and UEFA is regulated via statute, informally tension exists between the two organisations given the preeminent status of the European football market. Affiliated to the continental (European) federations are the national associations which organise and regulate the sport in question within their national territory and associated to the national federations are the regional federations and leagues. At the base of the pyramid lie the sports clubs, players and administrators. Channels of authority tend to be rigidly hierarchical with disputes generated at the base of the pyramid having to be considered sequentially upstream.

The pyramid structure is defended on the grounds of organisational efficiency. The structure facilitates the pursuit of policy goals designed to maintain coherence within the pyramid between the professional game and grassroots sport. This flows from the duty of the governing body to act as the guardian of the sport at all levels. Consequently, the narrow economic interests of individual stakeholders should not be allowed to detract from the discharge of this duty. Furthermore, as the pyramid also implies competitive fluidity, particularly in terms of the system of promotion and relegation which operates in many sports, the governing bodies require clubs to commit to the entire structure and impose sanctions on participants which deters the formation of, and participation in, rival structures. It is also claimed that sports with multiple governing bodies lose public interest as the public prefer to associate with one national and international competition rather than with competing competitions.

The pyramid governance model has attracted criticism from some stakeholders such as clubs and players, who argue that it promotes undemocratic practices, particularly in relation to stakeholder representation and acts as a tool to maintain the regulatory and commercial dominance of the governing bodies. They also complain that the structure leaves governing bodies unaccountable, particularly where decisions of a regulatory nature impact on the commercial freedoms of the stakeholders. The supremacy of international / global governing body 'law' often frustrates stakeholders who identify conflicts with national and/or international law.

One such conflict concerned the issue of mandatory player release rules for international football and the fixing of the international match calendar. FIFA rules provide for the mandatory release of players for national association representative matches, a rule defended on the grounds that without such obligations, clubs would refuse to release players and international football could not function. (1) However, the FIFA regulations do not provide financial compensation for clubs who are required to release a player. The Association calling up a player is expected to bear the costs of travel actually incurred by the player as a result of the call-up. The club for which the player concerned is registered is responsible for his insurance cover against illness and accident during the entire period of his release. This cover must also extend to any injuries sustained by the player during the international match for which he was released. (2) Clubs refusing to comply with the mandatory release clause can be subject to a points or game forfeiture. (3) For the larger clubs, at issue was the imposition of a rule which is used to strengthen the commercial viability of international football whilst denying the clubs a voice in the framing of the rules or a direct share in the profits generated. Furthermore, they objected to the related issue of the unilateral and binding determination of the coordinated international match calendar by the governing body. A challenge brought by Belgian club Charleroi, and supported by G14 (4), was due to be heard by the European Court Justice (ECJ) who were expected to provide guidance on whether the release rules and the fixing of the international calendar constituted unlawful restrictions of competition or abuses of a dominant position. (5)

An out-of-court settlement was negotiated between the parties at a meeting in Zurich in January 2008 at which representatives of FIFA, UEFA and clubs agreed 'on the intention to regulate their future relationship with a number of actions' including the establishment of a new body within the UEFA structure through which club interests could be channelled (the European Club Association), the dissolution of the G14, the withdrawal of the Charleroi ECJ case and the payment of financial contributions for player participation in European Championships and World Cups. (6)

A similar issue has been raised in handball, where Group Club Handball (GCH, an association of European Handball Clubs) lodged a complaint with the European Commission in April 2009 against the International Handball Federation and European Handball Federation in which GCH objected to the exclusive control of the federations over international competitions and their unilateral determination of the handball calendar and control over the clubs' players, who must be released for such events over long periods of up to 100 days, without financial compensation or insurance, in the middle of the clubs' winter season. GCH argues that such practice "constitutes an unjustified restriction of competition," and violates thus article 101 of the Treaty on the Functioning of the European Union (TFEU). (7) This is the first time that the commission has been officially asked to examine the compatibility of player release rules and rules regarding sport club events with European Union competition law (8).

Protecting the Specificities of Sport

The sports market operates under conditions that are different to those found in 'normal' industries. The governing bodies have a duty to promote the good of the game at all levels and in doing so have made regulatory choices that would be considered anti-competitive in other sectors. For example, in recognition of the mutual interdependence which exists between sporting competitors, the governing bodies engage in coordinated action such as in coordinating fixtures and the rules of the game. Whilst this would be considered collusive behaviour in normal markets, clearly sport could not operate without some level of co-ordination. But how far should cartelisation be tolerated and at what point does co-ordination unfairly restrict the commercial activity of stakeholders? For example, does the inability of some clubs to individually exploit their broadcasting rights undermine competition between undertakings and have consequential impacts on other markets such as the broadcasting sector? Can or should market objectives be qualified by other considerations such as the need to collectively exploit broadcasting rights for the purposes of ensuring horizontal and vertical solidarity in sport?

As part of their role to promote the good of the game, the governing bodies have also adopted rules designed to promote competitive balance in sport. Sport, it is suggested, requires uncertainty of result to maintain public interest and its commercial viability. This uncertainty extends beyond a single match to include uncertainty of outcome over the course of a single season and over the course of a number of championships. Examples of coordinated action by a governing...