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The past couple of weeks have seen a major ruckus run through the world of Rugby Union, raising questions about the financial aspects of the game and how to ensure fair competition.

On 5 November 2019, an Independent Panel of Premiership Rugby, the league for the first division rugby club championship in England & Wales, announced its eagerly awaited decision concerning alleged breaches of the sport’s salary cap by Saracens Rugby Club (“Saracens” or “The Club”). The Panel upheld the charges against the Club, concluding that in relation to each of the seasons 2016-17, 2017-18 and 2018-19:

— Saracens had failed to disclose payments to senior players; and
— The Club had exceeded the ceiling for payments to senior players.

The Panel imposed a sanction of (i) a total fine of £5,360,272.31 and (ii) and a total deduction of 35 league points. The Club initially indicated that it would appeal the decision, meaning that the sanctions would have been suspended pending determination of that appeal. On 18 November 2019, however, Saracens confirmed that no appeal will be pursued

Saracens is a leading team at the English and European level and has enjoyed a period of unparalleled success as the champions of the Premiership in four of the past five seasons. They are the current title holders of the European Rugby Champions Cup, which they also won in 2016 and 2017. The captain of the English national team, Owen Farrell, and seven other members of the national squad, which reached the final of this year’s Rugby World Cup, are among its players. The imposed deduction has taken Saracens to the bottom of the league table, from 3rd place, and means that the Club is at risk of relegation (1). 

The Salary Cap

Rugby Union is one of several sports in England (rugby league, county cricket, and basketball) which imposes what is often referred to as a “salary cap” on professional players (2).

For Rugby Football Union (“RFU”), the provisions for this cap are contained in the Salary Regulations or Salary Capping Regulations, some form of which were first introduced in 1999. The Regulations were designed to act as cost control measures and to ensure the financial viability of clubs, as well as to maintain competitive balance (see §2.2 of the Regulations). 

In essence, the Regulations stipulate that Clubs (or a Connected Party to a Club) can only pay their Players or their Connected Parties up to a maximum amount, or “ceiling”, of total financial compensation (whether as traditional salary or other payments) within a set period, defined as the “Salary Cap Year” (1 July – 30 June). The maximum amount is expressed as a collective sum which Clubs can pay out rather than restricting what an individual player can be paid. The concept of “salary” is relatively broadly defined in the Regulations (at r.1.1 and §1(a)-(w) of Schedule 1), to include salary, wages and fees as well as bonuses, insurance premiums and accommodation costs.

Background to the case

Limited details as to the facts behind the investigation into Saracens are available and the Independent Panel’s decision does not shed any light on the factual circumstances. News reports suggest that the allegations related to business connections (which were openly declared) between players at the Club and persons connected to the Club’s ownership, including through the use of jointly held companies or investments (3). All that is really known is that, following a nine-month investigation, in June 2019 Premiership Rugby charged the Club with breaches of the salary cap for the three years from 2016-2019. The Club rejected those charges and, according to Premiership Rugby, challenged the validity of the Regulations “on competition law grounds” though it remains unclear what the scope of that challenge was.

The charges were considered by an eminent Independent Panel, chaired by the Rt. Hon. Lord Dyson (former Master of the Rolls and Justice of the Supreme Court). The hearing took place over five days in September and October 2019. The Club initially indicated an intention to appeal the Independent Panel’s decision, which would have resulted in a review of that decision by an arbitration body. However, it has now confirmed that an appeal will not be pursued (4).

Comment 

Salary caps have become an ever more present feature of European sports, having been well-established in the ‘Big Four’ professional sports in the United States (baseball, basketball, grid-iron football and ice-hockey) for some time. Salary caps also exist in, for example, the European ice hockey leagues. Although there was some investigation of a potential cap in European football, initiated by the governing body UEFA in 2001, the ultimate cost-control measures selected were “Financial Fair Play” (as to which, and the competition law considerations which arise see our analysis here). The Women’s Super League (WSL), however, does operate a salary cap.

It is difficult to decipher or analyse the effect of the Independent Panel’s decision on the operation of such salary caps given the paucity of information that is publicly available and the lack of reasons provided. The Panel’s only statement was that “the Panel noted that the salary cap operates in a pro-competitive manner by promoting the objectives of ensuring the financial viability of Clubs, controlling inflationary pressures, providing a level playing field, ensuring a competitive league and enabling Clubs to compete in European competitions.” Nevertheless, two interesting issues arise. Firstly, the Panel’s statement suggests that it accepted that competition law applies to the salary cap. Secondly, it would appear that the Panel adopted a relatively broad interpretation of the concept of ‘salary’.

In the US, baseball has been exempt from antitrust scrutiny since the US Supreme Court’s decision in Federal Baseball Club v. National League, 259 U.S. 200 (1922), but other professional sports are not – see, for example in relation to American football - Radovich v. NFL, 352 U.S. 445 (1957). The US judicial practice has been to extend a so-called “labor exemption”, i.e. exemption from antitrust scrutiny and justification for agreements which pursue positive objectives for labour relations, for collective bargaining agreements concluded between players and Clubs/Leagues in these sports (see, e.g. Brown v. National Football League, 518 U.S. 231, 255 (1996)). A number of antitrust challenges to salary caps have failed on this basis (see, e.g. Wood v. NBA, 809 F.2d 954 (2d Cir. 1987) and Mackey v. National Football League, 543 F.2d 606, 615 (8th Cir.1976)).

As a matter of EU and UK law, the established competition law considerations in the regulation of sport consist of three principal questions namely: (i) does the sporting rule cause a restriction of competition within its overall context?; (ii) are the restrictions caused by the rule inherent in the pursuit of its objectives?; and (iii) is the rule proportionate in light of those objectives (5)? Also of relevance is the decision in Case C-67/96 Albany (6) in which the CJEU concluded that the requirements of competition law would not apply to collective agreements between employers and employees if such agreements (i) were the result of negotiations between management and labour and (ii) had the effect of improving employees’ working conditions (including their remuneration). This is similar in philosophy to the US labour exemption from antitrust rules. 

In this case, the key question seems to have been whether, when assessed in context and in light of the specific circumstances of the sport, the Regulations are a proportionate response. On the face of their statement, the Panel’s conclusion accepts the premise behind the Regulations and the objectives which are pursued by them – namely emphasizing the importance of the corrective design of the rules, to address any financial imbalances within and between Clubs. This echoes the decision of a CAS Panel restricting common ownership of competing clubs in the same competition (the ENIC case - AEK PAE and SK Slavia Praha v UEFA, CAS 98/2000, Digest of CAS Awards II 1998-2000 (Kluwer, 2002) at [150]-[151]).

The second issue of interest concerns the Panel’s approach to what constitutes ‘salary’ (7) in this context, and how the Regulations should be construed. Evidently, this will turn on the specific facts of the case but it does raise a wider question about the scope of financial relationships between clubs and players, as well as third parties associated to them. The Regulations seek to strike a balance between the freedom of players employed by the Club to pursue economic activities outside of their playing career – including with third parties who might have some connection to rugby - and ensuring that there is no circumvention or dilution of the rules designed to maintain competitive balance.

It is regrettable that the Panel’s decision has not been published in greater detail, so as to shed light on issues which cut across different sports, and which would no doubt advance understanding of the application of domestic and EU rules to professional sports. The absence of any appeal means that no further detail is likely to emerge. For the moment, therefore, the salary cap emerges intact and is potentially of wider scope than was previously understood by Clubs and participants.

References

(1) See “Saracens boss Mark McCall admits club will sacrifice Europe to avoid relegation as he hails 'united spirit' in victory over Gloucester”, telegraph.co.uk, 9 November 2019, available at https://www.telegraph.co.uk/rugby-union/2019/11/09/saracens-boss-mark-mccall-admits-club-will-sacrifice-europe/ 

(2) In addition to a salary cap, county cricket also operates a salary ‘collar’, i.e. a minimum amount a county must spend on player salaries.

(3) See “The Business Links – How Saracens’ salary cap breach became the biggest story since Bloodgate”, TheRugbyPaper, 12 November 2019, available at https://www.therugbypaper.co.uk/domestic-club-rugby-union/34171/the-business-links-how-saracens-salary-cap-breach-became-the-biggest-story-since-bloodgate/. Contrast this with reports in “Saracens plead their innocence but rugby union’s whole structure is on trial”, Michael Aylwin, 10 November 2019, Guardian online, which contains a different account of the conduct at issue: https://www.theguardian.com/sport/blog/2019/nov/10/saracens-plead-innocence-premiership-rugby-structure-on-trial

(4) See “Saracens: Premiership club set to drop appeal over points deduction and fine after breaching salary cap”, I. Parkes, independent.co.uk, 17 November 2019, available at  https://www.independent.co.uk/sport/rugby/rugby-union/club-rugby/saracens-rugby-point-deduction-gallagher-premiership-fine-table-rules-a9206236.html.  

(5) See the judgments of the Court of Justice of the EU (“CJEU”) in Case C-519/04P Meca Medina v Commission [2006] ECR I-6991 at [22]-[28] and [42] and Case C-309/99 Wouters [2002] ECR I-1577 at [97].

(6) [1999] ECR I-5751.

(7) This is the definition used by the Commission of the European Communities. Commission White Paper on Sport, at note 210, COM (2007) 391 final (July 11, 2007). Economic scholars doing research in the field also use this definition, see, e.g., Helmut Dietl et al., The Effect of Salary Caps in Professional Team Sports on Social Welfare, 9  B.E.  J.  ECON.  ANALYSIS &  POL. 1, 1 (2009); Paul D. Staudohar, Salary Caps  in Professional Team Sports,  in COMPETITION  POLICY  IN  PROFESSIONAL  SPORTS:  EUROPE  AFTER  THE  BOSMAN  CASE  71,  71  (Stefan Késenne  &  Claude  Jeanrenaud  eds., 1999).  Three of America’s four largest leagues have hard team salary caps: the National Basketball Association (NBA) has had a salary cap in place since 1984, the National Football League (NFL) followed in 1994, and the National Hockey League (NHL) implemented one in 2005. Additionally, NBA and Major League Baseball (MLB) have a luxury tax 
Andrew Howarth, The Impact of the Salary Cap in the European Rugby Super League, 3 INT’L J. BUS. & MGMT. 3, 4 (2008). 
See, e.g., Mélanie Aubut, When Negotiations Fail: An Analysis of Salary Arbitration and Salary Cap System, 190 SPORTS LAW.  J. 189 (2003);  D.  Albert  Daspin,  Of  Hoops,  Labor  Dupes  and  Antitrust  Ally-Oops: Fouling Out the Salary Cap, 62 IND. L.J. 96 (1986); Scott J. Foraker, The National Basketball Association Salary Cap: An Antitrust Violation?, 59 S. CAL. L. REV. 157 (1985). 

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