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Why it’s time competition law was applied to sport in South Africa

An increasing number of popular sports clubs, like Manchester United and Real Madrid, have their stocks publicly traded in major stock exchanges around the world. This underlines the view that sport is no longer simply a cultural spectacle. It’s also become big business.

This applies to South Africa, where football, rugby and cricket have become big commercial affairs. Because sport isn’t formally recognised as an economic sector in South Africa, figures are hard to come by. But data from the South African Department of Sports and Recreation estimates that in 2009 sporting activity contributed about 2.1% to the country’s GDP – that’s about R41 billion.

It’s beyond doubt that the contribution of sport as a sector to the country’s economy has increased over the past decade. Not only does sport create paid employment within the game, it also supports other economic sectors such as tourism and infrastructure development.

But, like many other sectors of the South African economy, the business of sport is riddled with unfair practices that probably infringe the Competition Act. Until recently, for the most part these had been allowed to go unchecked by competition authorities.

There are signs that this might be changing. Following an investigation, the country’s competition commission has announced it will be prosecuting football agents, their companies and the South African Football Intermediaries Association for “fixing prices and other trading conditions”.

The case relates to the practice of agents fixing the price or commission that has to be paid when players and coaches change clubs. This is also the case when players and coaches sign or renew corporate sponsorship deals.

The commission’s case against football agents is significant because it brings sport in line with standard rules of business, and recognises the important role that sport plays in the economy. The case relates specifically to football agents, but the principle it’s trying to assert has relevance and will apply to the actions of agencies in other sporting codes as well.

Applying competition law to sport will promote fairness, professionalism, efficient resource allocation and economic development. The case also brings South Africa in line with other countries and regions in the world. In Europe, for example, various sporting activities have already been subjected to the scrutiny of competition law.

Threats to competition

There are lots of practices in sport that are viewed as being “normal” but that should in fact be cause for concern because they may undermine the Competition Act.

One example are rules for sports leagues and competitions that benefit, favour or give one club – or a few clubs – an advantage over others. What’s often ignored is that sport clubs in the same league or competition are in effect in competition with each other for what is often a significant amount of prize money.

The competition principle could be infringed if clubs of equal status in the same association or league are deprived of the opportunity to compete – or if they’re placed in a competitive disadvantage – without a justifiable sporting or operational reason. This could amount to an exclusionary act in terms of section 8 of the Competition Act.

Sports clubs are also in competition with each other for corporate sponsorships. Some big clubs enjoy a significant proportion of the market share. This gives them the financial power and prestige to attract players and coaches from other clubs.

This power may be used in ways that amount to an abuse of dominance from a competition law perspective. The most common example of anticompetitive conduct in this context is what is known in sports circles as “taping up”. This is where top - and often wealthy clubs – secretly court players or coaches from other clubs, promising them better deals. It would amount to an abuse of dominance if this was done without first getting the consent of the club to which the player or coach is contracted.

Competition law also supports the view that using one’s financial strength to destabilise rivals, for example by poaching their key staff, may be anticompetitive.

Broadcasting, the holy grail of modern sports, may at times also fall foul of the Competition Act. The main areas of concern are the terms and conditions of broadcasting rights. For example, the dominance of a preferred broadcaster – and excluding rivals from the market – could be entrenched when a sports league, competition or association awards a lengthy and generally exclusive broadcasting contract to a dominant player.

Ticketing for sport games could also be another problem area. A dominant ticketing company could be using its power to persuade or force associations or clubs to enter into exclusive ticketing agreements with it. This may raise competition concerns because it excludes rivals, or limits their ability to sell tickets.

The way forward

There is wide recognition that sport has transformed itself from a social activity into an economic activity with potential to spur economic development. Stakeholders involved in sport may soon need to realign their rules, policies and practices to ensure compliance with the provisions of South Africa’s Competition Act.

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