CASENOTE CASE ASSOCIATES COMPETITION & REGULATORY ECONOMISTS
Economics of Competition & Regulatory Issues March 1996
Sports Leagues Do Not Have Market Power? Murdoch’s Super league setback in an Australian Court
MR MURDOCH’S relentless acquisition of sporting rights Bridgeman, who has referred the English Premier League to received a set-back in late February when the Federal Court the Restrictive Trade Practices Court. He claimed that the blocked, at least temporarily, his attempt to establish a rival Premier League acts as a cartel in the sale of television rugby league in Australia. The Federal Court (News rights to football matches. Limited v Australian Rugby Football League Limited and Others) held that agreements between the Australian Rugby However, whether co-operation between sports clubs in a League and its members were not anti-competitive, and League is anti-competitive depends critically on the actions inducing breach of these agreements would attract existence of market power. This in turn is partly damages. This decision and its commercial implications are determined by the degree of competition between different of particular importance given the recent reference of the sports for the same audiences. If rugby does not compete UK Premier League to the Restrictive Trade Practices Court with other sports and is popular then a sports League can and the Bundeskartellamt’s investigation of the German abuse its market power by raising prices, whether for tickets Bundesliga. or for television rights, to the detriment of those audiences.
The Facts This is effectively the allegation that News made. It alleged In the latter part of 1994 it was rumoured that News that the relevant market - the market in which suppliers and Limited was preparing to establish a new rugby league - to buyers compete - was defined by the game of rugby and, be known as the Super League - to replace the National therefore, the League had substantial market power. The Competition. In response, the Australian Rugby League ARL’s action in tying clubs through restrictive and (ARL) offered 20 clubs admission to the National exclusionary agreements therefore acted to restrict Competition for five seasons on the condition that each competition. The ARL on the other hand argued that the agreed to participate for those seasons, and not in any other relevant market was much wider including but not limited competition unless conducted or approved by the ARL. to cricket, soccer, Australian Rules football and basketball. Each club signed a Commitment Agreement to this effect. ... the relevant market consists of rugby, News continued to develop proposals for a Super League to soccer, cricket, basketball and be controlled by the ARL. However, the new proposal was Australian Rules football rejected by the ARL which sought Loyalty Agreements from the clubs to re-confirmed and strengthen the The Court accepted the ARL’s argument for two reasons. Commitment Agreement. First, documents given to the Court showed that News viewed the Super League as a way to win spectators and Two months later, News began to sign a large number of pay-TV viewers from other sports i.e. that rugby did players and coaches for new clubs to form a competing compete with other sports. Second, News failed to establish Super League consisting of 12 clubs. At the same time, that the ARL had market power in the wider market for News commenced legal proceedings claiming that the sport as defined by the Court. It could have shown that ARL’s agreements should be set aside on the grounds that while rugby might compete with other sports these were the League had abused its significant market power by poor substitutes in the eye’s of spectators and viewers, thus preventing the entry of the proposed Super League. still giving the ARL significant market power. It totally Subsequently, a number of clubs aligned themselves with failed to discharge this burden of proof, which was a major News and sought to have the agreements set aside on the tactical mistake. grounds of “economic duress”. The Federal Court held that the ARL’s agreements were in Rugby is not a Sports Market fact pro-competitive encouraging the clubs to make Sports leagues involve co-operation and restrictions investments in the sport and that News wrongly induced between clubs. It is therefore easy to make the argument players and coaches to breach agreements. It now faces the that they are inherently anti-competitive. Indeed, this is the view of the UK’s Director General of Fair Trading, John
. CASENOTE, March 1996 C A S E A S S O C I A T E S prospect of substantial damages estimated at A$ 200 million especially in light of the forthcoming move to digital and an injunction which may last to the end of the century. television and the prospect of pay-per-view.
Television is Key Markets not Regulators Force the Pace Many - if not all - competition investigations of sports While the Super League ruling may offer few legal lessons leagues have less to do with the leagues themselves and for the Premier League, it does provide commercial ones. more with developments in pay-television. The Super The dramatic change in the economic value of sport will put League case arose from rivalry between two fledgling pay- predictable pressures on Leagues and clubs which will have TV operators building cable networks in a television market equally predictable outcomes irrespective of regulatory which, while relatively affluent, is small. Given the high intervention. Pay-TV has led to a shift in economic power infrastructure costs and the key role of sport in generating from broadcasters to sports organisations. However, as it take-up of pay services, the importance of the case to the becomes apparent that certain clubs and sportsmen have protagonists cannot be under-estimated. Murdoch’s Foxtel greater economic value than others the present organisation consortium had hoped to trump the second Australian pay- of sport will break down. It is here that the economists’ TV operator and owner of television rights to the National theory of cartels can provide some pointers to the Competition, Optus Vision (partly owned by Kerry Packer’s development of the sports market. A cartel or club tends to Channel 9). be stable in the longrun if its members are similar. This is not the situation in UK soccer. Some clubs, such as The established terrestrial broadcasters have left a large Manchester United, are consistently able to attract large live unsatisfied demand for sport which is being rapidly filled by and television audiences. They will want the financial new cable and satellite pay channels. For these channels returns which reflects their greater pulling power at the access to high rating sport programmes is critical - they are turnstile and ratings. The formation of the Premier League the single most important reason why people subscribe. was an interim solution to this development. As the The result has been a dramatic escalation in the fees paid for economic disparity between clubs grows the tension sport rights. between the larger ones wanting to maximise their share rather than the size of the “pie” will build-up, leading to the In Australia, as elsewhere, this development has perplexed further re-organisation of sport. and confused competition authorities. Faced with Leagues, restrictions, exclusivity and pressure from broadcasters they The introduction of pay-per-view will see the second wave have launched investigations claiming that Leagues, long- of destabilisation hit European sport. This will fragment the term contracts, and exclusive arrangements are anti- market and focus attention on the economic value of competitive. However, claims that co-operative individual events and their owners rather than Leagues. arrangements per se are anti-competitive have been Economic power and returns will migrate from Leagues to thoroughly discredited in Europe with the repeated individual clubs and players as the reward systems become outbidding of the European Broadcasting Union for sports more refined and individualised. Even today some UK rights. clubs are exploring forming their own television channels!
... digital television will undermine the league The future of football is likely to be turbulent. Whether this structure and the present organisation of sport comes about through an unfavourable decision of the RTP Court that the Premier League is acting as a cartel, a break-
irrespective of the actions of regulators away league or simply through a change in the distribution
policy of the Premier League, larger clubs, such as The outcome of the Super League case (which no doubt will Manchester United and Newcastle United, can look forward be appealed) does not provide a clear precedent for other to a greater share of TV revenues, and may even be countries. At a legal level this was a new area for the confident enough to cut out the middlemen! Australian courts and News’s case was badly argued.
Irrespective of this the smallness of the Australian market and its insularity would also have affected the outcome. The UK in particular is more developed and competitive
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