When the US hosted the FIFA World Cup in 1994, it was said to have spent $500 million on the tournament. Fast forward to 2022, Qatar reportedly spent a whopping $220 billion. Sport is now “big business” . . . and being big business means competition law scrutiny.
There are three main fields of competition law enforcement: (1) the prohibition of anti-competitive agreements—think cartels; (2) the prohibition of abuses of dominance—think monopolies and excessive pricing; and (3) merger control. Thanks to recent ECJ decisions, we are starting to understand how competition law on anti-competitive agreements and abuses of dominance should be applied to sports. We now know that UEFA and FIFA’s attempts to block the breakaway Super League was a breach of EU competition law, and that enforcing “homegrown player rules” in professional football is capable of restricting EU competition law. Merger control in sports, though, has been less high profile in recent years.
It is shaping up to be quite a year for sports mergers and acquisitions. Liberty Media, the owner of Formula One, has just announced plans to takeover Dorna Sports, the parent company of MotoGP (the world’s leading motorcycle racing series) for more than $4 billion, with plans to unite the two racing series. Not long before this, the Public Investment Fund (PIF, the Saudi Arabian sovereign wealth fund, reportedly worth over $700 billion) made headlines with what has been described as an attempt to “buy professional tennis”, by offering a reported $2 billion to merge the leading professional male and female tennis tours—the ATP and WTA. This announcement also not long followed similar headlines in golf, with the world’s leading professional golf tours, the PGA Tour and DP World Tour, announcing their plan to merge with the LIV Golf tour (created and owned by the PIF). This was something of a U-turn—the parties had been engaged in a rather public spat. PGA Tour Commissioner, Jay Monahan, having for example made some politically charged comments about the rival LIV Golf tour.
While these sports deals are in their infancy, they nonetheless raise some important questions. Will they be given the green light by competition regulators around the world?
Which competition regulators will want to look at these deals?
All of the parties to these deals operate on a global scale, with significant presence in the UK, EU and US. One only has to take a look at the different parties’ tournament calendars to see the wide array of countries they visit. It is therefore likely that the Competition and Markets Authority (CMA), European Commission (the Commission), and Federal Trade Commission (FTC) or Department of Justice (DoJ) (and perhaps other competition regulators) will want to conduct reviews.
It is early days for the Formula One/MotoGP deal, and there has been no official announcement of an ATP and WTA merger, so we are yet to formally hear whether any competition regulators intend to conduct reviews of these deals. In the case of the PGA Tour, DP World Tour and LIV Golf merger though, the DoJ has already commenced an investigation.
When will a merger be investigated?
Each jurisdiction has a particular threshold test to apply to see if a merger qualifies for examination. For example, in the UK, if the UK turnover of the target company exceeds £70 million, or if the deal creates or enhances a share of supply of 25%, it qualifies for possible investigation by the CMA. In the EU, the primary way for the Commission to review a merger is through mandatory notification if the parties meet the relevant turnover thresholds.
A deal may be prohibited where it may be expected to result in a “substantial lessening of competition” in one or more relevant markets (UK test) or in a “significant impediment to effective competition” (EU test). In both cases, this involves identifying a theory (or theories) of harm to assess how the process of rivalry might be harmed if a merger were to go ahead. The type of theory of harm reached will largely depend on whether the merger can be classified as horizontal or non-horizontal (or perhaps a combination of both).
The majority of jurisdictions (including the EU and US) prohibit closing a deal prior to clearance. The UK is an exception to this rule, though the CMA can commence an investigation on its own volition and order the parties to be held separate pending the CMA’s decision.
Do all big sports deals raise competition law concerns?
Not all major sports mergers and acquisitions will necessarily give rise to competition scrutiny. Take, for example, the PIF’s £300m takeover of Newcastle United Football Club in October 2021. Whilst this may sound like a controversial transaction (and seem similar to the tennis and golf deals), it was never likely to sound competition regulator alarms.
The PIF was not in competition with Newcastle United. This was the first professional football club that it acquired. So, there was no direct loss of competition resulting from the takeover. The PIF didn’t seem to be active on any relevant upstream or downstream markets where it could foreclose an input and harm its downstream competitors. There were no signs of ‘conglomerate effects’, where it could use its control in one market to harm competition in another market. All in all, there was no obvious harm facing competition and the deal proceeded without any competition scrutiny.
As the PIF starts to build its sports portfolio with the tennis and golf deals, competition regulators may start to consider ‘conglomerate effects’ more seriously. It could even be the case that two different sports are considered to be in competition with each other on the market for TV rights, as we will see below.
Some deals might not trigger a merger control investigation because they are not considered to be ‘mergers’ at all. For example, PIF is an ATP tour ‘multiyear strategic partner’ that enjoys title sponsor of the ATP rankings system and on-court branding at some of the major ATP 1000 events. Similarly, it has been recently announced that PIF has partnered with the World Snooker Championship. These sorts of sponsorship deals are unlikely to trigger merger-control investigations unless they provide the sponsor with the ability to control the commercial strategy of the partner company by having, for instance, a board seat, equity ownership or the ability to veto the partner’s business plan.
Are Formula One and MotoGP likely to merge?
It seems likely that Liberty Media’s deal to buy MotoGP will face some competition scrutiny. This deal (albeit with slightly different parties at a slightly different time) has essentially already been considered by the Commission, who decided that it would impede effective competition if it were to go ahead unconditionally.
In 2006, the then owners of MotoGP, private equity firm CVC Capital Partners, wanted to take over Formula One. The Commission looked at the deal and thought that it had the potential to lead to increased prices for the television rights to these sports events and would likely limit consumer choice. Formula One and MotoGP were deemed to be close substitutes in Spain and Italy and owning both of those sporting events would have put CVC in a riskily strong bargaining position vis-à-vis broadcasters. The Commission was also concerned that CVC would try to bundle the rights for MotoGP with those for Formula One. The Commission was only prepared to let the takeover proceed if CVC agreed to divest MotoGP entirely—which it ended up doing.
Liberty Media, however, is of the mind that the market has since changed and that Formula One and MotoGP comprise only a mere part of it. It has also stressed that it is not planning to bundle these products, but to treat them as separate products. Renee Wilm, Liberty’s chief legal officer, has also tried to bring light to the fact that the Commission’s decision is more than twenty years old and was not subject to any appeal process.
The market may have since changed, but Formula One and MotoGP remain notable participants with similar fan bases. It will be interesting to see how the Commission (and other regulators) will approach this deal this time.
Will ATP and WTA be allowed to merge?
A merger between the ATP and WTA tours seems set to warrant merger control examination—though whether it is enough to be blocked is harder to say. The ATP tour is the leading professional men’s tennis tour in the world, and the WTA is the leading professional women’s tour in the world. Given the size of these two tours, they may meet some jurisdictions’ threshold tests and qualify for merger examination. The tours may argue that they are not actually in competition with one another, as one is a professional men’s tennis tour and the other is a professional women’s tennis tour. Though, I doubt this argument will hold much weight, given that we have already seen a competition regulator say that two different sports are capable of being in competition with each other.
Just like the Commission observed in CVC, TV rights will undoubtedly form part of the competition analysis. ATP and WTA currently compete with one another to sell their TV rights, providing a healthy constraint on the price that each can charge. A merger risks removing this constraint. The tours may argue that selling TV rights separately is leading to inefficiencies. It seems that in the past different networks have had the rights to either the WTA or ATP at a particular time, which has made viewing both tours more difficult for consumers. This is a legitimate point to raise, though, in the UK at least, Sky Sports has secured exclusive rights for both tours until 2029, which suggests this issue can be resolved without the need of a merger.
That being said, there seems to be some appetite for a restructuring of tennis. 20-time grand slam winner Rodger Federer called for a uniting of the tours a few years ago, reports have suggested that the “sport has been hampered by fractured governance”, and the disparity between the prize funds for men and women has received much attention. It has been suggested that a merger would result in equal pay for both men and women. If this is something that can only be achieved through merging, then competition regulators may be inclined to resultantly favour the merger. Any inefficiencies flowing from a misalignment between the tours will also be relevant. Of course, these bare assertions will not be enough without further evidence. The tours will have to prove to regulators that a merger will be the only way to fix any governance issues, ensure equal pay between male and female players, and ultimately show that the market and consumers will be better off.
The details of the PIF’s reported $2 billion offer are yet to surface. It is not clear to what extent the PIF are proposing to be involved—whether they would be in ‘control’ of the new merged tennis tour entity or whether they would simply acquire certain sponsorship rights. The PIF are also not the only ones offering a deal. Not long before their reported bid, there had been talks by certain major tennis bodies of condensing the tennis circuit and creating a “Premium Tour”, which would combine the Grand Slams with some of the ATP’s and WTA’s flagship events. Differences remain between the PIF’s deal and the Premium Tour deal that will be important for tennis stakeholders. Either way though (and with or without these particular entities), the ATP and WTA seem to want to merge. They will need to have some plausible competition justifications at the ready.
Will the golf deal be given a rough merger control ride?
It is hard to look past the market positions of the PGA Tour, DP World Tour and LIV Golf and not foresee competition concerns arising from their merger. The PGA Tour is the leading US tour. The DP World Tour is the leading European tour. And LIV Golf, the latest market entrant, is quickly becoming a notable rival on the global stage by buying the best players from the PGA Tour, DP World Tour and elsewhere. A merger would lead to significant market concentration.
The tours did not give the impression they had sought competition law advice before announcing their plans to merge. PGA Tour Commissioner, Jay Monohan, said that “we are competing with LIV” and explained that the merger was a way to “take the competitor off the board, to have them exist as a partner”. If, by the tours’ own omission, the purpose of the merger is to remove the competition, then it will likely not pass merger control standards. Prior to the announcement to merge, the parties had also been suing each other for competition law violations. The LIV Tour attempted to sue the PGA Tour in the US for abusing its monopoly power, after the PGA Tour had banned its players from participating in the LIV Golf tournaments. There was also a similar claim, where certain LIV Golf players commenced arbitration in the UK against the DP World Tour for breach of competition law. Now, these claims do not mean that the deal is set to fall foul of the merger control process, but it does bring attention to possible competition concerns that might not have otherwise been raised.
Since LIV Golf’s arrival on the golf scene, competition in the golf tour market has arguably improved. More money is being paid to the players than ever before. LIV Golf made a novel entry by offering signing bonuses to many of its players—Dustin Johnson, for example, was reportedly paid $125 million to join the tour. It also offered $25 million in prize money per tournament, more than double the amount that was up for grabs on the PGA Tour or DP World Tour at that time. In response, the PGA Tour has increased its tournament prize funds, adjusted its format and gained further investment. Would this have happened but for LIV Golf? Arguably not. The LIV Golf product is vastly different to the more traditional format of the PGA Tour. Its tournaments include a team element. They are played over three days, with players starting on different holes to reduce the overall viewing time for fans (the PGA Tour and DP World Tour tournaments are played over four days with all players starting on the first hole only). Music is played during tournament play and a live gig brings the tournament to a close. This innovation and differentiation may be at risk should the tours merge. It could therefore be said that regulators might view the current rivalry as a good thing and not allow it to be killed.
TV rights and sponsorship deals will be another competition concern here. At present, broadcasters and companies wishing to market their products in the professional golf scene have a strong bargaining position. They can choose between acquiring TV rights or marketing opportunities on the PGA Tour, DP World Tour or LIV Golf respectively. Should the tours merge, it’s hard to see how this bargaining position would not be compromised. When LIV Golf players made antitrust claims in the US against the PGA Tour, they argued that prior to LIV Golf’s entry the PGA Tour had “used its monopoly position to extract substantially increased revenues from broadcasters and advertisers”. If this was a risk prior to the constraint of LIV Golf, it will likely be a risk should the merger go ahead.
Having made the shock announcement that the tours were deciding to merge last year, progress towards nearing an actual agreement has been relatively slow. Meanwhile, the PGA Tour has reached a deal with another private equity firm, SSG, for an investment of $3 billion. And, LIV Golf has continued to poach PGA Tour players for large amounts of money—John Rahm was recently paid a reported $500 million to leave the PGA Tour and join LIV Golf. But very recently it has been hinted that the tours have now exchanged term sheets. Should this merger go ahead, the tours will need to have convincing arguments in place to address some of these competition concerns.
Conclusion
Competition regulators will face some difficult questions if these deals progress. Sports holds particular societal importance. Whilst we know that it is not immune from the clutches of competition law, such importance will nonetheless weigh on the minds of regulators when considering the pros and cons of these deals. I for one will be following this area closely.
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