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18 Jun 2020

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In the midst of the Covid-19 pandemic, most of us have forgotten about Brexit for a little while. However, as lockdown measures begin to ease, Brexit is coming back to the centre court. Sport is coming back as well, at least if one considers the Premier League and the Championship.

Physical activity for normal people – rather than millionaire footballers – has to some extent continued throughout the pandemic, exempted from restrictions in light of its contribution to well-being.

Sport and its financing are relevant for a range of objectives, from well-being support, to its connection with the entertainment industry, to employment and tourism, to investments by third parties such as broadcasters and sponsors.

Sport and physical activity contribute for more than £30 billion to the UK economy, while the Premier League broadcasting generates revenues for more than £2.8 billion per year.

The combination of the economic impact of Brexit and the financial aftermath of Covid-19 will constitute a significant challenge to the financing of the sport sector.

The suspension, or in some cases outright termination, of the sporting season has already put at risks sports’ revenue streams.

It is a distinct possibility that the Premier League will have to refund the broadcasters for the expenses they incurred in relation to the games that were called off during lockdown.

This is not only relevant for the elite level, as some of these revenues are redirected to the governing bodies, which are then entrusted with guaranteeing the solidarity and the financing of the entire system.

This financial crisis will necessarily require the sport system to reduce its expenses. While some emergency measures were adopted to face the immediate aftermath of the Covid-19 emergency, such as pay deferral and deductions, as well as general use of the furlough scheme provided for by the UK government, demands for cost control measures could be extended.

Examples of such cost control mechanisms are the salary cap in Premiership Rugby, or the UEFA’s Financial Fair Play (FFP) rules, which sanction clubs that spend more than what they earn.

Their enforcement will have to consider the financial turmoil caused by the pandemic, as clubs will report losses in 2020 which are unlikely to be met with revenue increase in the short term.

The legality of such cost control measures can still be assessed under EU law, even when they are adopted by governing bodies seating outside the EU territory. National competition law, which mostly resembles EU competition law, will apply to national governing bodies anyway.

Striking a balance between the need to guarantee the sustainability of the system and enough flexibility to allow the level of expenditure necessary to offer an attractive spectacle will be a tough challenge.

In this context, this is a chance for governing bodies to enlarge the regulatory landscape and involve all the affected stakeholders in their decision-making practices.

Sport financing is also connected with state aid. Under Article 107 of the Treaty on the Functioning of the EU, the intervention of public authorities on the market needs to be limited to avoid excessive distortions of the competition.

Exceptions exist when the measures are needed to face economic difficulties and emergencies, and to stimulate necessary economic development, and in sport, where the investment is used to enhance participation and benefits the public.

If the impact of Covid-19 will materialise as foreseen, calls for debt cancellations and public investment in sport infrastructure may become more common.

While negotiations on the adoption of a state aid regime in the UK after Brexit are still ongoing, two points appear clear. General rules on public subsidies from the WTO will continue to apply to the UK.

Furthermore, even if the UK would subscribe to the EU state aid regime, its public authorities will still maintain a significant level of discretion over investments in the sporting sector at grassroot level and to increase sport participation, where activities are unlikely to constitute a competitive threat to EU counterparts.

Instead, public investments channelled to elite level would be in any event met with criticism by the British public, thereby discouraging this eventuality.

The impact of free movement restrictions will also be felt on the financing of the system. For example, the Premier League has acquired an international character and attracts an international audience, making it a sought-after product, successfully marketed and sold globally.

In its 2019 Financial Report, the English FA has recognised that restrictions to players recruitment could result in a devaluation of the commercial rights of national competitions.

The protection and exploitation of these rights constitute the lion’s share of the value of British sport and its brands. The relevance of broadcasting rights and their exploitation assumes even greater importance in this scenario.

The collective selling of the rights formally constitutes a restriction of competition, as different companies pull together their individual products – the rights to their matches – to sell them to a small pool of broadcasters.

However, EU institutions have often treated these conducts with sensitivity, accepting how the sporting sector relies on the selling of these rights as a fundamental source of funding, and acknowledging that an equitable sharing of the revenues could increase the balance between competitors.

This solidarity is likely to constitute an even stronger argument for governing bodies facing the looming financing difficulties.

In this relation, EU law will still apply to UK governing bodies and leagues, when they collectively sell their media rights on the EU territory. While at national level EU law will cease to apply, national legislation that mirrors EU competition law, such as the Competition Act 1998, will still regulate the conduct of governing bodies within the UK.

It will also be up to the UK authorities to decide what to do with the crown jewels, events of societal importance that have to be transmitted free to air – like the FA Cup Final. These are protected in the UK under the Broadcast Act 1996, which implemented the Audiovisual Media Services Directive.

In discussing the opportunity to retain such a scheme, as well as to adopt various approaches to the financing of sport, appropriate consideration to the promotion of well-being, sports participation, brand exposure and commercial revenues will have to be exerted.

By Dr Andrea Cattaneo, lecturer in EU Law at Edge Hill University and a member of Edge Hill University’s Centre for Sports Law Research.

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