Does EU agreement with UEFA send out mixed message on competition law scrutiny in football?

The agreement appears to give UEFA a free pass from any formal investigation by the Commission into whether its rules comply with EU competition law, at least for the next three years.

At the same time, the agreement makes it clear that any initiatives, including the UEFA Financial Fair Play rules, must comply with competition laws.

The agreement does not prevent clubs, players or other stakeholders from lodging a legal challenge against UEFA rules through the courts during the period, and indeed a football agent is currently challenging financial controls UEFA has imposed on clubs. However, it may inhibit the Commission from acting on complaints it receives or from initiating its own investigations.

It comes at a time when England's top clubs are set to negotiate a new TV deal that could significantly widen the financial and subsequent competitive gap between them and those operating across lower divisions.

The UEFA/Commission agreement

The European Commission and UEFA announced earlier this week that they had signed a cooperation agreement (8-page / 1.16MB PDF) for the next three years.

The agreement outlines a commitment to a number of principles covering a range of subjects, from corruption, match-fixing, human trafficking, doping, violence and racism in sport, to financial stability, protection of intellectual property rights, and the redistribution of money generated from selling broadcasting rights to matches.

The Commission's cooperation agreement with UEFA is unusual and, whilst most of the objectives set out in the agreement are not controversial, it is unclear why it was necessary to enter into a formal three year signed agreement to cooperate in respect of these objectives.

UEFA said the agreement "cements the organisations’ joint commitment to structured cooperation in key policy areas", whilst the Commission said it commits the two bodies "to working together regularly in a tangible and constructive way on matters of shared interest".

The terms of the agreement make it clear that the agreement and initiatives undertaken in light of it must respect EU laws, and references competition rules specifically.

Financial controls in football and competition laws

UEFA is one of a number of football authorities to have introduced rules that are intended to put an end to spiralling expenditure by clubs, in particular those operating at the top end of competition in Europe. Its Financial Fair Play (FFP) initiative was launched in an attempt to force clubs across Europe from spending beyond their means.

Since the 2013-14 seasons. UEFA has had the power to ban clubs from playing in its flagship Champions League competition or other pan-European competition the Europa League if clubs that have qualified for those competitions fail to 'break even' over a three year period. In England, separate financial control rules have been agreed for both the Premier League and across the lower divisions.

The FFP initiative is referenced in the Commission and UEFA cooperation agreement. The agreement recognises the right of UEFA to impose financial controls on clubs so long as those measures adhere to EU competition rules.

The relevant clause in the agreement states: "Financial stability, transparency and better governance within sport can be pursued through responsible self-regulation. In this respect, and subject to compliance with competition law, measures to encourage greater rationality and disciple in club finances with a focus on the long-term as opposed to the short-term, such as the Financial Fair Play initiative, contribute to the sustainable development and health growth of sport in Europe."

Football agent Daniel Striani is challenging the validity of the FFP break even rules in the Belgian courts on the basis that they infringe the EU competition rules which prohibit anti-competitive agreements and abuse of a dominant position.

Even if the courts rule that the FFP rules have an anti-competitive object or effect they could still be allowed to remain in place. This is because breaches of competition law can be considered justified and therefore benefit from an exemption if they are aimed at achieving legitimate objectives and provided that they are necessary and proportionate to the achievement of these objectives. If the courts find that the break even rules do not meet this test, they will be unenforceable.

The Commission has already expressed its support for the FFP rules in principle and earlier this year rejected Striani's complaint that the rules infringed EU competition law. It did so primarily on the basis that the matter was already being considered by the Belgian courts. The rejection of the complaint did not amount to a decision that the break even rules are compatible with the competition rules.

Its new agreement with UEFA, however, acknowledges certain objectives that the Commission views as legitimate aims within the governance of football and any potential action by the Commission in relation to FFP now seems unlikely, at least for the next three years.

The agreement does not, however, prevent third parties bringing challenges to the FFP rules. It will not stop the courts' review of the FFP arrangements and, whilst the courts take into account the views of the Commission, the judicial process is independent. The compatibility of the UEFA break even rules with EU competition law will be considered in the Striani case, the outcome of which will not be known until next year sometime.

What about a competition challenge against other football rules and agreements?

The UEFA/Commission cooperation agreement refers to a number of other issues in football that can raise competition law issues. This includes how much of the money top clubs earn from broadcasting rights deals should be filtered down to clubs in lower divisions.

The agreement makes it clear that both UEFA and the Commission recognise the importance of "long-term financial viability and competitive balance" in both elite and grassroots football.

One clause said: "Financial solidarity between elite sports and grassroots, but also among clubs of all sports at the professional level, is important in maintaining long-term financial viability and competitive balance, thus also protecting the integrity of sporting competitions. In this respect, redistribution mechanisms concerning, for example, audiovisual media revenues and training compensation fees should be recommended, in accordance with the EU acquis."

The next round of negotiations for the next wave of rights to televise matches from the Premier League in England are due to open in the coming months, reflecting the fact that the existing £1 billion-a-year deal the Premier League has with Sky and BT Sport expires at the end of the 2015/16 season.

The value of the rights under the next broadcasting deal is expected to increase sharply, which could potentially help Premier League clubs attract better players but consequently see a further widening of the gap between them and clubs operating in the Championship and further down the football pyramid both on and off the pitch.

At the moment, parachute payments given to recently relegated clubs from the Premier League to the Championship help address the financial divide.

The cooperation agreement between the Commission and UEFA arguably suggests that the issue of financial redistribution could be looked at again when the new Premier League TV deal is concluded to ensure that it corresponds to EU competition rules. Virgin has already put in a complaint to the UK sector regulator, Ofcom, challenging the way the Premier League rights are sold. The cooperation agreement makes clear that all of the areas mentioned will be subject to scrutiny and tested against the applicable law, emphasising the need for stakeholders in sport to actively consider these principles when settling agreements in future.

Increasing revenues is a vital factor for clubs given the financial controls they face under the FFP regime and similar domestic regulations, and the value of rights deals are a major attraction to prospective investors in clubs. However, care must be taken to ensure that commercial agreements and self-regulatory measures designed to enhance the game and make it attractive to investors do not interfere with the underlying need to ensure that there is uncertainty of the outcome in sport competition. It is on that basis that the public and media's interest in sport is based and from where the resultant value of commercial rights is built.

The Commission's ability to regulate competition in matters stemming from UEFA initiatives in the next three years is arguably constrained by the agreement it has now reached with the footballing body.

Angelique Bret is a competition law expert and Trevor Watkins is global head of sport and the global sports advisory team at Pinsent Masons, the law firm behind Out-Law.com