Formula One: EU Competition Law woes continue!

By Tom Serby

Anglia Ruskin Law School, Cambridge, UK


On 28 September, 2015, a complaint into the running of Formula One (F1), alleging that it infringes EU competition law, was filed with the EU Competition Commission by two of the smallest F1 teams, Force India and Sauber.

F1 is, of course, no stranger to EU Competition Law!

Fifteen years ago, (Case COMP/35.613 and Case COMP/36.638), the Commission concluded that the sport’s regulatory body, FIA, had abused its dominant position in the sport and limited free competition by restricting unnecessarily the freedom of circuit owners, drivers and teams, and promoters to engage in events and enter into commercial contracts with broadcasters.

As a result of those Cases, FIA agreed to divest itself of its business activities in order to safeguard its independence as a regulator. Broadcasting and commercial rights were transferred to a commercial rights holder under a 100 year agreement, and Bernie Ecclestone, F1’s chief executive, left FIA to commercialise and exploit these rights.

The crux of the current EU Competition Law complaint is that five teams – Red Bull, Mercedes, McLaren, Ferrari and Williams – receive guaranteed special payments of a combined amount of £155 million, from the private equity group that controls F1, CVC Capital Partners (CVC). The complaint alleges that Bernie Ecclestone’s F1 group of companies, controlled by CVC, has a dominant position in motor racing, which is abused and leads to distortion of competition through these guaranteed payments (which amount to a majority of F1’s total prize money).

A further allegation is that the five teams benefitting from the guaranteed payments unfairly dominate the proceedings of the sport’s core decision making ‘strategy group’.

Ecclestone was reported today (30 September, 2015) as saying that F1 was open to renegotiating the mechanism through which the £550 million F1 annual prize money was allocated between teams.

However, Ferrari President, Sergio Marchionne, was quoted as saying there was “limited scope” for the Commission to intervene, since the payment agreements with all the F1 teams were transparent and a matter of freely negotiated contracts.

Sport is, of course, subject to EU Competition Law and sports governing bodies must be able to demonstrate (under the Meca Medina/Wouters principle) that their ‘sporting rules’ are proportionate and justified, if they can be shown to be having an effect on competition.

The performance ‘on the paddock’ of F1 teams, just as in other sports, depends heavily on the amount of financial investment that they receive, and sporting rules that restrict or control investment in sport are currently a contested issue.

EU Competition Law has been invoked against sports governing bodies (largely unsuccessfully) in 2015 on two previous occasions, in both cases before Courts of First Instance in Belgium, in challenges respectively to UEFA’s Financial Fair Play Regulations (see GSLTR web posts of 1 & 27 July, 2015) and, on the second occasion, in a complaint about the potentially anti-competitive effect of FIFA’s regulations banning third party ownership of footballers (see GSLTR web post of 29 July, 2015).

In both cases, the rules had a justifiable end, preserving a sound financial basis among top flight football clubs, and preventing the possibility of collusive manipulation of competitions between opposing teams, respectively.

It will be interesting to see how F1 seeks to defend what are prima facie an anti-competitive agreement and an abuse of dominance, but it is perhaps telling that the Commission, no stranger to F1, did not independently launch its own investigation!