Procopé & Hornborg competition blog: Tension between competition law and sports: Restriction on ice in Finland
07.11.2019 | By Lotta Uusitalo
Written by Lotta Uusitalo and Sonja Heinonen
The Finnish elite ice hockey league (SM-Liiga) is one of the strongest national leagues in the world. The 15 playing league teams are actual owners of SM-Liiga. All of them act in a form of a limited liability company. It is safe to say that ice hockey is a top national sport involving a huge public and financial interest in Finland.
The Kontinental Hockey League (KHL) is an international professional ice hockey league that has 24 member teams based in Russia and its surroundings. It is considered the second best in the world behind NHL. A former SM-Liiga team, a Finnish team Jokerit joined KHL as of the 2014 – 2015 season. Jokerit plays in KHL as the only Finnish or Nordic country team. Jokerit is based in Helsinki.
The Finnish ice-hockey season generally begins in September and lasts until April-May. The governing body, the Finnish Ice Hockey Association, has so-called transfer windows that allow the players to be transferred from 1 May to 30 June and 1 August to 15 February in a given year except for certain changes due to international tournaments such as the Olympics.
Going beyond the transfer windows by the governing body, SM-Liiga and the league teams had agreed that the teams will not enter into an agreement with a player who has a contract with Jokerit at the beginning or during the season, and that transfers were only allowed from 1 May to 1 September. The parties further agreed that the SM-liiga teams will not enter into next season loan agreements with Jokerit outside the season and will not play friendly matches with them. SM-Liiga and the SM-Liiga teams continued to comply with this Agreement (the "Jokerit Agreement") from 2014 onwards. In addition, SM-Liiga and the teams monitor the compliance with the Jokerit Agreement and impose penalties for breach of the Agreement.
In its decision dated 31 October 2019, the FCCA ordered SM-liiga and the SM-Liiga teams to immediately terminate the illegal practice of restricting such player acquisitions and prohibiting friendly matches. The FCCA has not imposed a penalty payment but imposed a conditional fine of EUR 75,000 on each of the parties to enhance compliance of the order.
In the FCCA’s assessment, the league's internal email correspondence showed that SM-Liiga and SM-Liiga teams see Jokerit as their competitor on the ice hockey player market which is Finnish-wide. The FCCA noted that no corresponding restriction on player acquisitions by SM-liiga applied to any other foreign team or to any other KHL team. Also, the effects of the Jokerit Agreement mainly affect the ability of Jokerit to acquire players on the Finnish-wide player market.
The argument presented by SM-Liiga that ice hockey player market was global, was rejected. The exact definition of the relevant market was at the end not crucial since the question was found to be restriction by object, and thus the evaluation of applicability of de minimis -exception was not necessary. Another market definition that was flaunted was ice hockey related market for entertainment services which were also national according to the FCCA.
Specific characteristics of sports in the evaluation of the practice
SM-Liiga and the teams presented the FCCA with several arguments related to specific characteristics of sports and the rules of the game, and also invoked efficiency benefits. One argument put forward was the concern that SM-Liiga’s status could turn into a farm team. Also arguments of prevention of rapid changes in team line-up and the extensive work boosting junior ice hockey player’s and the fact that KHL has not set up a transfer compensation system for players as is in place with NHL were rejected by the FCCA. In addition, arguments concerning employment law and employment market were not accepted.
The FCCA noted the established case law of the European Court of Justice: EU competition law applies to sport when it concerns economic activity. According to the Commission and the case law of the ECJ, the legitimate objectives of sport are generally related to the organization and proper conduct of competitive sport. Legitimate public interest objectives may include, for example, ensuring the integrity of sport, the health and safety of athletes, or the appropriateness and objectivity of sporting competitions.
Insofar as they are applied in a transparent and non-discriminatory manner, rules of the game that are inextricably a part of the game are generally not contrary to competition law. The general rules on time limits for transfers of players typically associated with professional sport, i.e. transfer windows, have been found to be acceptable under certain conditions, including those relating to objectivity. The FCCA considered that the restriction on player transfers in the Jokerit Agreement was not a proportionate and necessary measure to the organization and proper conduct of the sports competition, as the League argued, firstly, because the Finnish Ice Hockey Association's competition rules already agreed on time limits for player transfers. The Jokerit Agreement’s restriction on player transfers went beyond what was stated in the Association rules. Secondly, the Jokerit Agreement’s transfer ban concerns only one competitor without any objectively justifiable reason. The FCCA also held that a ban on training matches does not appear to be a proportionate and necessary measure. This restriction applies only to Jokerit and not, for example, to other KHL teams against which the league teams are permitted to play friendly matches. In addition, the FCCA held that securing friendly matches does not require determining which team the league teams may not play with.
The FCCA found that the practice was contrary to Article 5 of the Finnish Competition Act and Article 101 (1) TFEU. According to the FCCA, the Jokerit Agreement as a whole, did not have an acceptable target relative to sport and was not purely about procedural rules related to the game. Even if such objectives existed, the conduct could still not be considered proportionate and necessary. The FCCA considered that the objective of the Jokerit Agreement was to protect the commercial interests of SM-Liiga and the league teams by restricting competition. The application of the Jokerit Agreement was found manifestly discriminatory and non-transparent.
The FCCA noted that existence of an anti-competitive object is assessed by objective criteria. In addition, subjective intentions of the parties can be taken into account as complementary and reinforcing evidence. The core issue in the assessment was whether the conduct under the assessment is in itself sufficiently harmful to competition.
Under the Jokerit Agreement, the league teams did not make player acquisition decisions independently as required by competition law, but instead, the league teams refrain from acquiring players as agreed, in an effort to exclude a major competitor, Jokerit, from the ice-hockey player market. In addition to excluding Jokerit, the ban on friendly matches was intended to make it more difficult for Jokerit to operate in the hockey-related entertainment market. According to the FCCA, the league and the league teams' practice was a comprehensive plan to exclude a competitor, in which the parties divided the market by means of collective boycotts and restrictions.
In its assessment of the nature of the conduct of the league and the league teams, the FCCA also took into account the content of the Jokerit Agreement clauses, its objective of excluding a competitor and its economic and legal context. The FCCA also considered the nature of the player transfers, player loan agreements and friendly matches, as well as the actual circumstances of the operation and structure of the Finnish player transfer market. The FCCA held that the objective aim of the procedure was to restrict competition. The documentary evidence, as well as the League's internal and public statements support the view of the SM-Liiga and the league teams’ subjective object of restricting competition. The FCCA noted that the parties were also aware of the possible illegality of their conduct.
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