The decision of the Bundesgerichtshof (BGH), the Highest Civil Court in Germany, in the Pechstein case was eagerly awaited. At the hearing in March, the Court decided it would pronounce itself on 7 June, and so it did. Let’s cut things short: it is a striking victory for the Court of Arbitration for Sport (CAS) and a bitter (provisory?) ending for Claudia Pechstein. The BGH’s press release is abundantly clear that the German judges endorsed the CAS uncritically on the two main legal questions: validity of forced CAS arbitration and the independence of the CAS. The CAS and ISU are surely right to rejoice and celebrate the ruling in their respective press releases that quickly ensued (here and here). At first glance, this ruling will be comforting the CAS’ jurisdiction for years to come. Claudia Pechstein’s dire financial fate - she faces up to 300 000€ in legal fees – will serve as a powerful repellent for any athlete willing to challenge the CAS.

Personally, I have, to put it mildly, mixed feelings regarding this decision. On the one hand, I am relieved that the BGH did not endorse the reasoning used by the Landgericht München in its ruling, challenging the necessity of forced CAS arbitration. But, on the other hand, I am rather disappointed that the BGH failed to endorse the balanced reasoning used by the Oberlandesgericht München in its decision (I translated the relevant parts of the ruling here). I believed this framing of the case would have offered a perfect vantage point to force a democratic reform of the CAS without threatening its existence. For those concerned with a potential flood of appeals, this could easily have been avoided by barring Claudia Pechstein to prevail on the merits of the case (or through preclusion for example). There was room for mild audacity and transnational constitutionalism (as I argued elsewhere), but the BGH opted for conservatism and conformism. I deeply regret it.

Though it is always perilous to comment on a case based only on a preliminary press release, I will offer here some (critical and preliminary) thoughts on the main aspects of the BGH’s legal reasoning.

I.               This is not forced arbitration (or is it?)

Paradoxically (or not), I chose to start with the end of the BGH’s press release discussing the validity of the arbitration agreement. The BGH is also very much drawn to paradoxes in this final paragraph of its press release. In a first sentence it states rather bluntly that Pechstein has freely signed the arbitration agreement in favour of the CAS.[1] Yet, conscious of the absurdity of such a claim (unless one means only that Pechstein was free to decide to become a professional speed-skater), it immediately qualifies its assertion by claiming that in any case the fact that she was forced to sign the agreement does not imply that it is invalid.[2] This is justified on the basis of a balancing exercise (which is not detailed in the press release and will be important to scrutinize in the final judgment) between the athlete’s fundamental right to a judge and her freedom to provide services and the constitutionally protected autonomy of associations (e.g. ISU).[3] This is particularly so, because Claudia Pechstein could appeal a CAS award to the Swiss Federal Tribunal (SFT).[4] Thus, she had access to a national judge and did not necessitate recourse to the German courts.[5]

Hidden in this relatively small paragraph, compared to the overall press release, are many controversial statements and assumptions. First, the claim that Claudia Pechstein (and any other international athlete for that matter) freely submits to CAS arbitration is surreal. So unconvincing, that the BGH itself debunks it in the following phrase. What is it then? Free consent or forced consent? You need to choose! In fact, CAS arbitration is always (in appeal cases) forced arbitration. This should be openly acknowledged by the BGH and the SFT. Instead, they are forced into logical convolutions that can only be perceived, in the SFT’s own words, as “illogical”.[6] Second, the balancing exercise conducted by the BGH should be scrutinized. Unfortunately, there is very little information on this balancing in the press release. Yet, one should not accept a restriction on the freedom of an athlete to provide services and on its fundamental right to access national courts, unless a forced CAS arbitration is shown as absolutely necessary to secure the autonomy of the Sports Governing Bodies (SGBs). Moreover, such a weighty restriction on the fundamental rights of an athlete should imply a strict assessment of the quality of the judicial process at the CAS. In light of the BGH’s assessment of the independence of the CAS (see more on this in part II.), one can doubt that it has taken this balancing exercise seriously. Finally, the claim that access to the SFT could compensate for the loss of Claudia Pechstein’s access to German Courts is ludicrous, or in good German realitätsfremd. Any CAS practitioner knows that the SFT favours (to its credit openly) a “benevolent”[7] approach to the CAS, and that it is extremely reluctant to overturn awards on the basis of procedural or substantial ordre public.[8] Winning an appeal against a CAS award in front of the SFT is a bit like Leicester City winning the Premier League, an oddity.

Based on the BGH’s press release, the ruling seems at best vague and unpersuasive and at worse negligent in its assessment of the factual and legal situation. One can well argue that on balance of interests, forced CAS arbitration might be necessary to preserve the existence of international SGBs and their competitions, but this would imply a way stricter assessment of the institutional independence of the CAS, which is entirely lacking in the press release. 

II.             The (in)dependence of the CAS

The core of the press release concerns the independence of the CAS. The BGH considers that the CAS is a true arbitral tribunal in the sense of German civil procedural law and that it is not structurally imbalanced in favour of the SGBs.[9] Therefore, forcing athletes to arbitrate disputes at the CAS does not constitute an abuse of dominant position. 

I contend that the BGH’s assessment of the independence of the CAS is, based on this press release, imprecise and in some regards even erroneous. It relies on four main arguments:

• SGBs and athletes share the same interest in the fight against doping
• SGBs and athletes share the same interest in having a uniform and swift sporting justice
• The CAS Code allows for sufficient safeguards in case an arbitrator is not sufficient independent/impartial
• The athlete can appeal to the SFT to challenge the lack of independence of an arbitrator

In the following sections of this blog, I will aim at critically unpacking and deconstructing these four arguments one by one.

A.    The shared interest of athletes and SGBs in the fight against doping

In a first paragraph, the BGH sets out to rebut the OLG’s argument that the CAS is structurally imbalanced in favour of the SGBs, i.e. due to the selection process of CAS arbitrators included in the CAS list. In the past, and still nowadays, it is the ICAS, a body constituted of 20 members nominated overwhelmingly by the SGBs, which decides who gets to be on the CAS list. Currently, based on their official CVs available on the CAS’ website, 13 out of 20 ICAS members have direct links with SGBs. Hence, the OLG’s reasonable assumption that the selection process of arbitrators could lead to the perception that the CAS was in a way captured by the SGBs and prone to favour their interests.

The BGH’s trick to rebut this finding of the OLG is to merge the interests of the athletes and of the SGBs into a shared objective of fighting against doping.[10] This is, bluntly speaking, ludicrous. It would be like arguing that the independence of the criminal justice is redundant, because both the State and the accused citizen share an interest in public safety and security. This is legal nonsense and is not up to the standards of the BGH. It is easy to discern that beyond an undoubtedly shared concern for the fight against doping, the athlete and the SGB involved in a particular dispute over a failed anti-doping test have radically opposite interests. Consequently, the independence of the CAS is crucial to ensure that the SGBs do not abuse their legitimate regulatory and executive powers in an anti-doping dispute. 

B.    The shared interest in a uniform and swift sporting justice

The BGH, thereafter, argues that the CAS would be necessary to ensure the uniformity and swiftness of sporting justice and that this would be also in the interest of the athletes.[11] I actually share the view of the BGH on this need for a uniform sporting justice embodied by the CAS. Still, the German judges fail to comprehend that this argument can be used only to justify the post-consensual foundations of the CAS, but is toothless to promote laxer standards of independence for the CAS. The need for uniformity and swiftness might call for a single institution having mandatory jurisdiction, but not for this same institution to be captured by the SGBs or to fail to ensure due process guarantees. Here, ironically, the BGH is laying the ground for a strict review: the recognized necessity of forced arbitration calls for an impeccable CAS on the due process side.

C.    The CAS Code safeguards the independence/impartiality of CAS arbitrators

In the following sections of its reasoning, the BGH argues that any remaining imbalance of the CAS in favour of the SGBs could be remedied via the procedural safety mechanisms included in the CAS code.[12] In the full judgment it probably refers to article S.18 CAS Code providing that arbitrators have to sign “an official declaration undertaking to exercise their functions personally with total objectivity, independence and impartiality, and in conformity with the provisions of this Code” and to article R.33 CAS Code stating that “[e]very arbitrator shall be and remain impartial and independent of the parties and shall immediately disclose any circumstances which may affect her/his independence with respect to any of the parties.” Based on article R.34 CAS Code, any challenge of an arbitrator on the basis of the latter provision must be submitted to the ICAS Board composed of six members, five of which are or have been in the past involved in executive positions in SGBs. In these conditions, it should be obvious that challenging the independence of an arbitrator vis-à-vis the SGBs is extremely unattractive for an athlete, even more so when considering that in case of failure there is a risk of alienating the arbitrator in question. This is why the CAS’s independence issue is systemic and cannot be solved without re-designing the selection process and composition of the ICAS.

Furthermore, the BGH also argues that both parties can chose an arbitrator and that both arbitrators will then designate the President of the panel.[13] This is plainly wrong. In appeal cases, concerning almost all the anti-doping cases and which was the procedure followed in the Pechstein case, it is the President of the appeal division that designates the President of the panel.[14] The president of the division is also the one in charge of ensuring “that the arbitrators comply with the requirements of Article R33”. [15]  This person is directly nominated by ICAS and it suffices to remind that the previous holder of this position was (until 2013) Thomas Bach (now IOC President, then IOC Executive Board member), to demonstrate how doubtful its independence from the SGBs was and still is. It is difficult to understand how such a basic mistake has found its way into a BGH press release. Even the official CAS Code Commentary by the CAS Secretary General openly justifies this exclusive prerogative of the President of the appeal division by stating that she “can better evaluate if it is preferable to appoint an experienced arbitrator in order to act as chairman of the Panel or a less experienced CAS arbitrator, who is not widely known to the parties but who would have the necessary background to rule on a particular case”.[16] The dilettante manner in which the BGH has conducted its assessment of the CAS’ independence contrasts strongly with the OLG’s thorough discussion of the problematic role of the ICAS and of the president of the appeal division.[17]  

D.    The SFT’s control of the independence/impartiality of CAS arbitrators

Finally, and this is a point already touched upon in the first part of this blog, the BGH insists that the losing party has the possibility to appeal to the SFT, which can annul the award.[18] The problem is, again, that the SFT is a mere paper tiger. Yes, it intervened (mildly) in the famous Gundel case in 1993, because back then the IOC was directly and openly controlling the CAS, but since then it has adopted a very narrow interpretation of the scope for challenges of the independence of CAS arbitrators.[19] Generally, the SFT considers the CAS as a necessary evil that should be (very) benevolently checked. This is hardly a credible avenue to ensure that its decisions abide by the democratic standards called for on the basis of its mandatory global jurisdictions.[20]

Conclusion: A missed opportunity

In work of arts, I am, and remain, a fond admirer of Magritte’s surrealist take on life. Yet, I doubt that a Court should engage in a similar exercise when drafting its judgments. Its role is to get its facts right (or close to right) and find the fitting interpretation of the law in a particular context. In the present case, I believe the BGH failed on both fronts. In its press release it misrepresented basic facts (that can be checked in two clicks via google) on the functioning and institutional structure of the CAS, often concerning facts that were already available in the OLG’s judgment. This is extremely worrying for such a reputable Court. Additionally, it failed to properly understand its constitutional role vis-à-vis the CAS and the need to ensure that basic due process rights of athletes are respected at the CAS. This needed not entail the death of the CAS, nor the end of its mandatory jurisdiction, nor even that Pechstein should be allowed to have her liability claim heard (a flood of appeals could have been easily avoided). Instead, a reform of the CAS could have been simply achieved by a subtle Solange formula stating roughly that forced CAS arbitration is fine ‘as long as’ the independence of the CAS is safeguarded and the due process rights of athletes warranted. Hopefully, the case will move to the Bundesverfassungsgericht (and it is still pending before the European Court of Human Rights), which knows a thing or two about Solange formulas…

[1] “Die Klägerin hat die Schiedsvereinbarung freiwillig unterzeichnet.”

[2] “Dass sie dabei fremdbestimmt gehandelt hat, da sie andernfalls nicht hätte antreten können, führt nicht zur Unwirksamkeit der Vereinbarung.”

[3] “Denn auch insoweit ergibt die Abwägung der beiderseitigen Interessen am Maßstab des § 19 GWB eine sachliche Rechtfertigung der Verwendung der Schiedsklausel, die nicht gegen gesetzliche Wertentscheidungen verstößt. Dem Justizgewährungsanspruch der Klägerin sowie ihrem Recht auf freie Berufsausübung steht die Verbandsautonomie der Beklagten gegenüber.”

[4] “Schließlich ist der Klägerin im Anschluss an das Schiedsgerichtsverfahren Zugang zu den nach internationalem Recht zuständigen schweizerischen Gerichten möglich.”

[5] “Ein Anspruch gerade auf Zugang zu den deutschen Gerichten besteht danach nicht.”

[6] “Qu'il y ait un certain illogisme, en théorie, à traiter de manière différente la convention d'arbitrage et la renonciation conventionnelle au recours, sous les rapports de la forme et du consentement, est sans doute vrai.” BGE 133 III 235, at 245.

[7] “Exprimée d'une autre façon, cette logique veut que le maintien d'une possibilité de recours constitue un contrepoids à la "bienveillance" avec laquelle il convient d'examiner le caractère consensuel du recours à l'arbitrage en matière sportive.”

[8] See on this difficulty A. Rigozzi, Challenging Awards of the Court of Arbitration for Sport, J Int. Disp. Settlement (2010) 1 (1): 217-265.

[9] “Der CAS ist ein "echtes" Schiedsgericht im Sinne der §§ 1025 ff. ZPO.”

[10] “Denn die Verbände und die Athleten stehen sich nicht als von grundsätzlich gegensätzlichen Interessen geleitete Lager gegenüber. Vielmehr entspricht die weltweite Bekämpfung des Dopings sowohl den Interessen der Verbände als auch denen der Athleten.”

[11]“Die mit einer einheitlichen internationalen Sportsgerichtsbarkeit verbundenen Vorteile, wie etwa einheitliche Maßstäbe und die Schnelligkeit der Entscheidung, gelten nicht nur für die Verbände, sondern auch für die Sportler.”

[12] “Ein dennoch verbleibendes Übergewicht der Verbände wird ausgeglichen durch die Verfahrensordnung des CAS, die eine hinreichende individuelle Unabhängigkeit und Neutralität der Schiedsrichter gewährleistet.”

[13] “Der konkret an dem Verfahren vor dem CAS beteiligte Sportverband - hier die ISU - und der Athlet müssen je einen Schiedsrichter aus der mehr als 200 Personen umfassenden Liste auswählen. Diese Schiedsrichter bestimmen gemeinsam den Obmann des Schiedsgerichts. Ist ein Schiedsrichter befangen, kann er abgelehnt werden.”

[14] Article R54 CAS Code: “If three arbitrators are to be appointed, the President of the Division shall appoint the President of the Panel following nomination of the arbitrator by the Respondent and after having consulted the arbitrators.”

[15] Article R54 CAS Code.

[16] See footnote 2 in M. Reeb & D. Mavromati, The Code of the Court of Arbitration for Sport. Commentary, cases and materials. Kluwer, 2015, p.479.

[17] See generally A. Duval & B. van Rompuy, The Compatibility of Forced CAS Arbitration with EU Competition Law: Pechstein Reloaded. Available at SSRN: http://ssrn.com/abstract=2621983.

[18] Die unterliegende Partei hat die Möglichkeit, bei dem zuständigen schweizerischen Bundesgericht um staatlichen Rechtsschutz nachzusuchen. Das schweizerische Bundesgericht kann den Schiedsspruch des CAS in bestimmtem Umfang überprüfen und gegebenenfalls aufheben.

[19] See L. Beffa, 'Challenge of international arbitration awards in Switzerland for lack of independence and/or impartiality of an arbitrator – Is it time to change the approach?' (2011) 29 ASA Bulletin, Issue 3, pp. 598–606

[20] Here I implicitly refer to the pathbreaking democratic theory for international courts developped in A. Von Bogdandy & I. Venzke, In Whose Name? A Public Law Theory of International Adjudication, Oxford University Press, 2014.

Editor's note: Rhys is currently making research and writing contributions under Dr Antoine Duval at the T.M.C. Asser Institute with a focus on Transnational Sports Law. Additionally, Rhys is the ‘Head of Advisory’ of Athlon CIF, a global fund and capital advisory firm specialising in the investment in global sports organisations and sports assets.

Rhys has a Bachelor of Laws (LL.B) and Bachelor of Philosophy (B.Phil.) from the University of Notre Dame, Sydney, Australia. Rhys is an LL.M candidate at the University of Zurich, in International Sports Law. Following a career as a professional athlete, Rhys has spent much of his professional life as an international sports agent, predominantly operating in football.

Rhys is also the host of the podcast “Sportonomic”.

Introduction

In the following two-part blog series, I will start by outlining a short typology of investors in football in recent years, in order to show the emergence of different varieties of investors who seek to use football as a means to a particular end. I will then in a second blog, explore the regulatory landscape across different countries, with a particular focus on the regulatory approach to multi-club ownership. Before moving forward, I must offer a disclaimer of sorts.  In addition to my research and writing contributions with the Asser Institute, I am the ‘Head of Advisory’ for Athlon CIF, a global fund and capital advisory firm specialising in the investment in global sports organisations and sports assets. I appreciate and hence must flag that I will possess a bias when it comes to investment in football.

It might also be noteworthy to point out that this new wave of investment in sport, is not exclusive to football. I have recently written elsewhere about CVC Capital Partners’ US$300 million investment in Volleyball, and perhaps the message that lingers behind such a deal.  CVC has also shown an interest in rugby and recently acquired a 14.3 per cent stake in the ‘Six Nations Championship’, to the tune of £365 million.  New Zealand’s 26 provincial rugby unions recently voted unanimously in favour of a proposal to sell 12.5 per cent of NZ Rugby’s commercial rights to Silver Lake Partners for NZ$387.5 million.  Consider also the apparent partnership between star footballer’s investment group, Gerard Pique’s Kosmos, and the International Tennis Federation.  Kosmos is further backed by Hiroshi Mikitani’s ecommerce institution, Rakuten, and all involved claim to desire an overhaul of the Davis Cup that will apparently transform it into the ‘World Cup of Tennis’. Grassroots projects, prizemoney for tennis players and extra funding for member nations are other areas the partnership claims to be concerned with. As is the case with all investment plays of this flavour, one can be certain that a return on the capital injection is also of interest.

So, what are we to conclude from the trends of investment in sport and more specifically for this blog series, in football? A typology elucidates that a multiplicity of investors have in recent years identified football as a means to achieve different ends. This blog considers three particular objectives pursued; direct financial return, branding in the case of company investment, or the branding and soft power strategies of nations.

From Associations and Member Owned Clubs, to Corporate Structures

It is important to point out that the ability to use football as an investment tool is only possible due to the ways in which football has transformed from associations to corporations over recent decades. For the purpose of this short blog, I will give the simplistic and short story, though I would urge those interested to go beyond this blog on the history of football ownership models and trends.

Essentially what I hope to emphasise, is the influx of private ownership and the advent of substantial television rights deals cannot be divorced. At this pivotal turn for football ownership, private ownership had been taking place in some forms, often a hybrid model with members, and often the case was a private owner coming in and saving or at least supporting a club financially.  Whereas at the start of the 1990s when broadcast deals made headlines, private owners saw a commercial opportunity as football moved into a generation where broadcasting rights were the main source of revenue for clubs.  By the early 2010s in Europe, “approximately three of four professional clubs were majority owned by private investors, and one in six clubs were owned by foreign investors”.[1] Football club owners hence quickly became more business orientated and more market-driven due to the opportunities that broadcasters presented and the benefits leagues and organisers were able to conjure up. “The growing prize money of the UEFA Champions League, the escalating TV revenues for premium competitions, and the internationalization of marketing measures have strengthened the incentives”.[2]

Private owners saw member owned clubs as unable to maximise commercial opportunities, and it is the same kind of sentiment that is aimed towards the less commercially mature sports by Private Equity groups and other institutional players today.  That being, yes, you may know your sport, but you do not know how to take it to the heights it could achieve in the commercial sense.

Investing for Direct Return: Private Equity

Private Equity firms are notorious for being able to identify undervalued businesses that they can further improve the value of by trimming unnecessary or wasteful expenses, as well as reconstruct operations and other inefficiencies. The priority of course is to make money and a return for investors. 

A variety of Private Equity groups have found football appealing in recent years as clubs look for non-traditional means of funding and in some extreme instances, rescuing from bankruptcy. Larger Private Equity groups have come to be known to accrue a portfolio of football clubs and other sports asset investments in order to diversify their sports investment wings, and to maximise returns for investors.  For the boutique firms, the strategies might be more considered and to the observer less audacious, identifying undervalued and underperforming smaller clubs with a history at the top tiers of football or the potential to get there. There may of course be other commercial motivations for specific acquisitions, such as the location of clubs, though in a nutshell, these Private Equity plays are a matter of identifying undervalued football clubs with scope to grow in value, in turn providing an opportunity to make investments and acquisitions at a low entry point and to deliver substantial results for investors. 

Whilst examples of Private Equity investment into football are a plenty, conder the following few for the purpose of this short blog. As an example of a multi-club ownership portfolio, New City Capital, fronted by Chinese American, Chien Lee, now boasts investment and ownership in Barnsley F.C. (England), FC Thun (Switzerland), K.V. Oostende (Belgium), AS Nancy (France), Esbjerg fB (Denmark), and is the former owner of OGC Nice (France); selling the club at the time for a record price in the French context. Lee and his multiple co-investors bring strategies and philosophies to these clubs akin to the “Moneyball” strategies made famous by Billy Beane. With a business background, the investors involved clearly fancy their abilities to maximise value of the clubs, but Lee is additionally conscious of his ability to grow the value of the clubs by the ways in which he has been able to tap into Asia and create new fans and revenue streams based on these connections. “We will try to ‘internationalize’ Barnsley, as we did with Nice. Before we invested in Nice, not many people in Asia had heard of them. Now in Asia -- in China -- people know the club.”

In terms of opportunistic timing strategies, as well as funding arrangements in order to complete an acquisition, one may consider another noteworthy example in the Private Equity space, that of ALK Capital’s takeover of Burnley. A leveraged buyout play, the sports investment arm of ALK, Velocity Sports Partners, acquired majority and controlling shareholding of 84% late 2020. For its part, Redbird Capital has made a variety of investments into football, in a variety of ways. They took a direct stake into Toulouse FC, but have also made an interesting investment into the Fenway Sports Group that owns Liverpool FC. This ultimately highlights an overarching view that football is a good bet for the firm, yet also showing that investment into the world game may come in many shapes and sizes.

It is the case that with the aforementioned examples, the investments have been a success insofar as the assets and portfolios of these firms have experienced growth in value, for example New City Capital sold OGC Nice for a handsome return. However, one must also point at investment failures such as King Street Capital with Girondins Bordeaux. Some of the identifiable distinctions between those firms able to achieve their objectives or at least stay the course, and the King Street Capital debacle, appears to be among other things, a fractured relationship with local government and the distance between the firms ambitions, control over that ambition and those running the club (COVID-19 to an extent as well).

Investing for Nation Branding: Qatar & UAE, Soft Power & Sports Diplomacy

Insofar as football remains the world game, nations are acutely conscious of the consequent power in nation branding via football investment. Nation branding according to Dinnie’s summary, consists of three key objectives; to attract tourists, to stimulate inward investments and to boost exports.[3] For a nation like Qatar, it is additionally about security and standing on the international scene.  To attain such objectives though of course requires certain image and branding achievements. In recent years, it is notable that a variety of states have been using their financial power to invest in football, not for the sake of profit, but in order to improve their image internationally.

State branding via soft power strategies like investment in football has come to be known widely as sports diplomacy. A variety of nations have identified sports diplomacy as way in which to be viewed favourably by other nations and to create positive imagery around an investment that in turn reflects positively on the nations image. Soft power and sports diplomacy has been endorsed by scholars as legitimate strategies, given it is a non-military instrument to compete with much larger and militarily capable states.[4] This is of course key to a nation like Qatar, that desires to move away from oil dependency and has to compete with much larger neighbouring nations. Branding is to make a distinction between one brand and another. For Qatar, it is perhaps it’s ultimate struggle to differentiate and distinguish itself from its neighbouring countries.

One of Qatar’s headline soft power through investment in football strategies is the acquisition of, and post-acquisition operation of European giants, Paris Saint-Germain (PSG). It is almost impossible however to disconnect Qatar’s sports diplomacy strategies with PSG, from its strategies with BeIN Sports the broadcaster, along with being awarded World Cup 2022.  

The Qatari’s acquired PSG in a less than ideal state but have since managed to turn the club into one of the richest and most successful on the planet. PSG’s image remains a priority, because in turn it is seen that Qatar’s image is the beneficiary. The importance of this for Qatar might be best measured by the size of the spend on players since taking over the club. Putting the likes of David Beckham and Zlatan Ibrahimovic aside for the moment, PSG paid both the number one and number two world record transfer fees for Brazilian superstar Neymar (a reported 220 million Euro) and French wonderkid, Kylian Mbappe (a reported 180 million Euro). One media report said “The colossal Neymar deal, funded by Qatar Sports Investments, shows how far governments will go to secure global influence.” That article was headlined - “A £198m transfer is not about football. It’s about soft power”. 

Now consider the United Arab Emirates (UAE) and how it yields power through the following subsidiaries and stakes therein: Manchester City F.C. (100%), Melbourne City FC (100%), Montevideo City Torque (100%), Lommel S.K. (99%), New York City FC (80%), Mumbai City FC (65%), Girona FC (44.3%), Sichuan Jiuniu F.C. (29.7%), Yokohama F. Marinos (20%), Troyes AC (100%), City Football Academy, City Football Marketing, City Football Services, City Football Japan, City Football Singapore, City Football China, City Football India, CFG Stadium Group, Goals Soccer Centers.

Manchester City FC is certainly the golden child of the group and much like PSG for Qatar, the successful imagery around Manchester City cannot be disconnected from the desired branding in a global sense for the UAE. The growing list of investments of CFG highlights that the UAE is intent on soft power strategies and using sports diplomacy to brand itself widely as a legitimate and well organised nation. Was it a coincidence that just as the City Football Group was arranging its stake in the Chengdu based football club, Sichuan Jiuniu, the UAE’s national airline Etihad announced it “would be enhancing its links with Chengdu’s airport”? That is to say nothing of the Chinese investment into CFG.

Questions remain about whether these soft power strategies have been successful in light of for instance, the widely reported atrocious treatment and deaths of migrant workers in Qatar, or the ongoing reports of slavery in the case of the UAE. In an ugly sense, the success of the soft power investments of these nations in football, is whether they are loud enough to drown out the noise of the atrocities associated with their nations. The paradox for Qatar, is that before using football as a diplomatic tool and winning the right to host the World Cup, the exploitation of migrant workers was not making headlines. Ironically, it is this active use of football as a diplomatic instrument that has shone a light on the issue and effected Qatar’s image substantially.

Black and Peacock point out, when it comes to soft power sports diplomacy one ought to be aware that the values publicly portrayed and associated with an investment in football (i.e. success, courage, commerciality, aspiration) will often not be the actual values of a state but rather merely the values with which a state would preferred to be associated with to fulfil wider objectives.[5]

Investing for Company Branding: Red Bull

The other type of investment aimed primarily at improving the image of the investor (and not recouping a profit directly from the club as an entity) is company branding. In a way, it is the ultimate move of a sponsor, instead of paying an annual yearly contribution to the club, the sponsor takes control of the management of the club in order to maximise the image return for its brand. The paramount example of such a strategy is embodied by Red Bull’s investment in football clubs around the world. The regulatory complexities will be left for blog 2, but it is Red Bull’s stake and influence in four clubs (Red Bull Salzburg, RB Leipzig, Red Bull New York, Red Bull Brasil) that renders it the ultimate example of a company that found investing in football as way to brand at scale. Despite the success that Red Bull football clubs have experienced, sporting and commercial, the purpose for Red Bull investing in football is of course to further promote the brand and sell energy drinks.

Red Bull had previously and in a revolutionary way, tapped into branding via sport and had worked out a way to brand at large using the content production arm of the company. Utilising extreme sports, Red Bull campaigns focussed on associating itself with elite sport, perhaps thus conflating the alleged performance enhancing capabilities of its beverages or at least that its product was trendy and fashionable to drink in the context of sport.

When it came to football, Red Bull followed an ownership strategy rather than a traditional sponsorship method, opening up both the benefits of the ownership over traditional sponsorship models, and, the size, scale and reach of football as opposed to the more niche extreme sports.

Branding through football is seen as almost more covert, as the consumer is less aware that when they watch a branded club in a branded stadium, they are being advertised to;

“the consumer does not perceive that the content is branded. Sport content is predestined for branded entertainment. Engaging sports fascinate and attract people and have proven to be capable of transferring positive images… many niche sports still lack the attention of sport consumers or sponsors and are not covered extensively by the media. Branded entertainment, therefore, can provide niche sport enterprises, athletes, and teams as well as sponsors with consumer attention and prosumer engagement.”[6]

Conclusion & a note on Member Owned Clubs

Per the title of this blog, the typology of investors listed above is not exhaustive, though perhaps the most relevant as I segue into the regulations around multi club ownership. However, a short note on the membership model clubs is worthwhile. Member owned clubs still exist widely and some are in fact popping up in protest over a perceived hyper commercialisation of football. SV Austria Salzburg is a newer member owned club, established in response and in protest to the Red Bull ownership of the former SV Austria Salzburg, that Red Bull subsequently changed the name and colours of. Member owned clubs can be funded by paid memberships and more traditional revenue streams like ticket sales and sponsorship.  Control wise however, the members maintain the controlling stake and more importantly perhaps, the controlling vote. The hybrid model between private ownership and member ownership remains interesting, given what can be maintained in terms of history and culture, and what can be brought in in terms of commercial expertise and the reality that the need and desire for profits can drive success of a football Club.

As is hopefully apparent from the above, the types of investors and indeed the motivations come in all shapes and sizes. It is also worth pointing out, when it comes to the Private Equity groups and the nations and companies concerned with branding, the main reasons for investment does not render it the exclusive reason. Qatar will take the commercial benefits of PSG, BeIN sports and the World Cup. Part owners of CFG, China Media Capital/CITIC Capital (12%) and Silver Lake (10%) would not have invested with such alacrity based on the soft power strategies and state branding aspirations of the UAE, and rather those groups are of course more interested in the commercial benefits. Separate from selling more energy drinks than ever, Red Bull is undoubtedly pleased with taking RB Leipzig from the 5^th tier to the Bundesliga, and now valued at EUR560 million, Red Bull has an extremely valuable asset. Likewise, the big funds and institutional players are aware of the positive branding that sport affords them when their football investments are successful.

In the next blog, I consider the current regulatory landscape regarding investment in football with a particular focus on regulations that address multi-club ownership.

[1] Marc Rohde and Christoph Breuer, “The market for football club investors: a review of theory and empirical evidence from professional European football Institute of Sport Economics and Sport Management”, (German Sport University Cologne, Köln, Germany) European Sport Management Quarterly, 2017 VOL. 17, NO. 3, 265–289.

[2] Ibid P267.

[3] Keith Dinnie, “Nation Branding, Concepts, Issues, Practices”, Butterworth-Heinemann, 2008.

[4] Romain Herbreteau, “The use of a football club as a means of state branding: The mixed results of Qatar’s promotion in France” Leiden University - Master Thesis, Master of Arts International Relations, Supervisor: Dr Camillo Erlichman (2018)

[5] David Black and Byron Peacock. "Sport and Diplomacy." Oxford Handbooks Online (2013) 1-21

[6] Reinhard Kunz & Franziska Elsässer & James Santomier, “Sport-related branded entertainment: the Red Bull phenomenon” (2016)  Sport, Business and Management: An international Journal, 6, 520-541.

Editor's note: Deeksha Malik is a final-year student at National Law Institute University, India. Her main interest areas are corporate law, arbitration, and sports law. She can be reached at dkshmalik726@gmail.com.

In 2015, while interrogating cricketer Sreesanth and others accused in the IPL match-fixing case, Justice Neena Bansal, sitting as Additional Sessions Judge, made the following observations as regards betting on cricket matches.

“Cricket as a game of skill requires hand-eye-coordination for throwing, catching and hitting. It requires microscopic levels of precision and mental alertness for batsmen to find gaps or for bowlers to produce variety of styles of deliveries’ (medium pace, fast, inswing, outswing, offspin, legspin, googly). The sport requires strategic masterminds that can select the most efficient fielding positions for piling pressure on the batsmen. Based on above description, cricket cannot be described anything, but as a game of skill.”

The debate on the issue of betting in sports has since resurfaced and gained the attention of sportspersons, media, sports bodies, policymakers, and the general public. In April 2017, the Supreme Court bench comprising of Justices Dipak Misra and AM Khanwilkar agreed to hear a public interest litigation (PIL) seeking an order directing the government to come up with an appropriate framework for regulating betting in sports. The arguments put forth in the PIL present various dimensions. One of these pertains to economic considerations, a submission that regulated betting would be able to generate annual revenue of Rs. 12,000 crores by bringing the earnings therefrom within the tax net. As for policy considerations, it was submitted that a proper regulation in this area would enable the government to distinguish harmless betting from activities that impair the integrity of the game such as match-fixing. Further, betting on cricket matches largely depends on the skill of the concerned players, thereby distinguishing it from pure chance-based activities.

The issue of sports betting witnesses a divided opinion till this day. This is understandable, for both sides to the issue have equally pressing arguments. Aside from its regulation being a daunting task for authorities, sports betting is susceptible to corruption and other unscrupulous activities. At the same time, it is argued that it would be better for both the game and the economy if the same is legalised.

THE MAGNITUDE OF CONSIDERATIONS

It is feared by some that the consequences of recognition and legalisation of betting could be negative, considering what happened in Australia. Australia legalised online betting in 2001, and by 2009, it found itself in a situation where betting took over the sporting landscape in a big way. The impact was clearly visible; betting was marketed extensively in public places, attracting many young potential punters. Some found the trend disturbing, for sports fans were more concerned about their personal gains than about the sport itself. It is estimated that around 500,000 Australians are on the verge of becoming “problem gamblers.”

There has been an increasing support for the other side of the debate that argues for recognition of betting as a legal activity. It is argued that criminalising betting does not prevent its happening; it merely drives the activity underground where it continues to thrive. Add to it the substantial revenues that government would be able to obtain therefrom. In fact, the Report of the Supreme Court Committee on Reforms in Cricket, also called the Lodha Committee Report, submitted that given the worldwide legal sports betting market which is worth over $400 billion, it will be in the best interest of the economy if betting is given legal recognition.

POSITION IN THE USA AND THE UK: GROWING ACCEPTANCE OF THE UK-BASED MODEL

In the USA, federal law has taken a tough stand against betting and gambling. The 1992 Professional and Amateur Sports Protection Act (PASPA) makes it unlawful for a person to sponsor, operate, advertise, or promote betting, gambling, or wagering scheme based, directly or indirectly, on one or more competitive games in which amateur or professional athletes participate. The provision prima facie makes no distinction between betting and gambling, and it is, therefore, irrelevant for the purpose of establishing an offence under this provision whether the activity in question involves skill or not.

On the other hand, one may refer to the position in the UK, where there has been a well-developed betting market with appropriate measures to ensure that the system is not abused. The governing organisation in this regard is the UK Gambling Commission, initially set up under the 1960 Betting and Gaming Act which works in partnership with all the sporting bodies which, in turn, frame their own bye-laws to regulate betting.[1] Apart from licensing requirements, the framework provides for an information-sharing system, whereby bookies are required to report any suspicious betting activity within their knowledge to the Gambling Commission.[2] The example of the UK shows how through appropriate safeguards and implementation policy that involves various stakeholders such as the sports bodies and the booking companies, sports betting could be effectively regulated, bringing, at the same time, significant economic advantage. It does not come as a surprise that a majority of Americans have advocated for a UK-based model.

Recently, the Supreme Court of the United States began dealing with the issue in the case of Christie v. National Collegiate Athletic Association. The State of New Jersey seeks to get the PASPA annulled, which, in turn, would facilitate state-sponsored sports betting. It is being submitted that the federal government through the aforesaid statute is violating the anti-commandeering principle of the Tenth Amendment, according to which states cannot be mandated to carry federal acts into effect. The outcome of the case would certainly have an impact on the debate, one way or the other.

POSITION IN INDIA: THE ‘GAME OF SKILL’ DEBATE

In India, the power to legislate on betting and gambling is conferred on states, since these subjects are enlisted in the State List. Nevertheless, the pre-independence legislation, namely the 1867 Public Gambling Act (Act), is still valid today, though some states have enacted their own laws pertaining to betting and gambling. Section 12 of this Act provides that it does not apply to a ‘game of skill.’ The legislation, therefore, makes a distinction between a ‘game of chance’ and a ‘game of skill.’ The term ‘game of chance’ has been explained in the case of Rex v. Fortier[3] as a game “determined entirely or in part by lot or mere luck, and in which judgment, practice, skill or adroitness has honestly no office at all or is thwarted by chance.” It has further been held in the case of State v. Gupton that any athletic game or sport is not a game of chance and instead depends on a number of factors such as skill, ability, form and practice of the participants.

At this juncture, reference must be made to the case of KR Lakshmanan v. State of Tamil Nadu, wherein it was held by the Supreme Court of India that horse racing, foot racing, boat racing, football and baseball are all games of skill. Betting on, say, a horse race entails use of evaluative skills in order to assess several factors such as speed and stamina of the horse, performance of the jockey, and the like. Similarly, the Supreme Court in State of Andhra Pradesh v. K Satyanarayana observed that rummy is not like a three-card game which is based substantially on chance. There is considerable amount of skill involved in memorising the cards, or in holding and discharging them, in a rummy game. The uncertainty involved in shuffling and distribution of the cards does not alter the character of the game to one based on chance.

Based on these judgments, it is reasonable to infer that betting in cricket, too, is an activity involving sufficient skill and is not based merely on chance. A person who studies the form and performance of a player, the conditions of play and the like could predict the outcome of a game with a reasonable accuracy. The mere uncertainty of the outcome should not come in the way of understanding sports betting as an activity based on skill. Considering this important factor, the government should proceed to develop an appropriate framework to regulate betting. 

A PRACTICAL POLICY FRAMEWORK

The International Cricket Council, too, has suggested that India should come up with a suitable policy framework to regulate betting.[4] Such a framework would keep a check on individuals and further help detect and prevent corrupt activities. The above-mentioned Lodha Committee Report has strongly recommended legalising cricket betting in India. The suggestion is based on the premise that while match-fixing interferes with the integrity of the game itself and is unacceptable, betting is a “general malaise” indulged by different sections of the society and is capable of being regulated. Therefore, betting should not be equated with unscrupulous activities such as match-fixing.

Having been so distinguished, a regulation along the lines of the UK model could be put in place to establish regulatory watchdogs tasked with monitoring betting houses and persons entering into betting transactions. Those placing bets could be brought within a licensing system wherein their identification and other details are recorded. This could be supplemented by an information-sharing mechanism whereby a database of undesirable entities such as bookies and fixers would be shared with players so that they do not remain in the dark with respect to suspicious activities. Importantly, players, match officials and administrators should be kept out of such regulated betting, and they should continue to be bound by the Board of Control for Cricket in India (BCCI) and IPL rules. It is important to note here that the BCCI Anti-Corruption Code prohibits participants from soliciting, authorising, placing, accepting, laying, or otherwise entering into any bet with any person in relation to the result, progress, conduct or any other aspect of any match or event. The Code further makes it an offence to ensure “the occurrence of a particular incident in a match or event, which occurrence is to the participant’s knowledge the subject of a bet and for which he/she expects to receive or has received any reward.” As can be seen from the provisions, the liability is imposed specifically on the participant. This is in line with the opinion of the Lodha Committee, which has recommended that if betting were to be legalised, the players should nevertheless be barred from indulging in the activity so as to prevent any apprehension concerning their integrity. It is submitted that bringing these reforms in the current uncertain and highly ambiguous regime would address several surrounding issues, provided all the stakeholders work in tandem.

Lesson could be learnt from the state of Nagaland, which recently enacted a law, namely the 2016 Nagaland Prohibition of Gambling and Promotion and Regulation of Online Games of Skill Act. The said legislation defines “games of skill” as including “all such games where there is a preponderance of skill over chance, including where the skill relates to strategising the manner of placing wagers or placing bets, or where the skill lies in team selection or selection of virtual stocks based on analyses, or where the skill relates to the manner in which the moves are made, whether through deployment of physical or mental skill and acumen.” Besides providing such an inclusive definition, the Act sets out a schedule enlisting certain activities that shall be regarded as games of skill, such as poker, rummy and virtual games of cricket and football. All such games shall be regulated by way of issuance of a license to persons or entities based in India. Upon receiving the license, such a person or entity is eligible to earn revenue from games of skill, whether by way of advertising, obtaining a share of winnings or charging a fee for membership.

Some stakeholders are advocating for a uniform legislation on betting that would ensure that the legal position on betting remains the same across all the states. In July 2017, the All India Gaming Federation along with an advisory panel presented a white paper to Law Commissioner BS Chauhan, recommending a central legislation regulating online skill gaming, and that sports betting in general and cricket betting in particular be recognised as a game of skill. Such a legislation could introduce a system of checks and balances along the lines of that existing in the UK, for instance. A proposal has also been moved from the Central Information Commission in the case of Subhash Chandra Agrawal v. PIO, recommending the Government of India to consider moving the subject of sports from the State List in the Constitution of India to the Concurrent List so as to ensure a uniform policy regulating sports bodies and national sports federations such as the BCCI.

CONCLUSION

The international discourse on the issue of sports betting shows just how inadequate the Indian legal regime is to cater to the same. Suggestions have been pouring in from all quarters as to how, upon being legalized, cricket betting could be regulated. These suggestions, along with international best practices concerning ethics and betting, should be taken into account by the legislature and the executive to bring in an appropriate framework to address cricket betting. This, of course, requires the active participation of all the stakeholders, with the BCCI leading the way. 

[1] Ali Qtaishat and Ashish Kumar, ‘Surveying the Legality Issues and Current Developments’ (2013) 20 JL Policy and & Globalization 40, 42.

[2] See Gambling Act 2005 s 88.

[3] Rex v. Fortier 13 Que. KB 308.

[4] Rohini Mahyera, ‘Saving Cricket: A Proposal for the Legalization of Gambling in India to Regulate Corrupt Betting Practices in Cricket’ (2012) 26 Emory Int'l L. Rev.