Introduction
The recent trade of Indian all-rounder Hardik Pandya in the Indian Premier League (IPL) was surprising when earlier it was settled that he would play for his previous franchise Gujarat Titans (GT). The IPL trade window is a facility for teams to trade players for their respective teams.
Trading of players is not an uncommon phenomenon in the world of sports leagues. The problematic aspect of player trades is the involvement of transfer fees which raises anti-competitive concerns. Reports suggest Mumbai Indians (MI) paid a whopping Rs 100 crore transfer fee to GT for the trade.
Through this article, the author attempts to draw parallels from practices followed in worldwide sports leagues, anti-trust challenges to sports leagues in various jurisdictions, anti-trust concerns of uncapped transfer fees, anti-competitive analysis of transfer fees from Indian perspective and analyzes sports leagues from a consumer’s perspective.
IPL Trade Rules
It refers to the mechanism where a player moves from one team (trading team) to another (receiving team) outside the auction process. Trade happens via two methods:– all-cash transfers or player-for-player swaps. The player getting traded has to consent to the transaction. The consummation of the transaction occurs when trading team approves the bargain which implies that the trading team has final say in the bargain.
The most crucial and controversial element is the “Transfer Fee.” It is the amount paid by the receiving team to the trading team. It is additional to the player’s price. It is known only to the franchisees involved. The fee is mutually agreed between the parties. The fee is uncapped. The player can also get a share out of the fee according to the agreement which is capped at 50%.
Player Trade in Different Cricket Leagues
In Australia’s premium T20 cricket tournament BBL, player transfers do not occur with the aid of a transfer fee as there is only player-for-player transfer.
Anti-Competitive Concerns of Uncapped Transfer Fee
A blot on the legacy of IPL occurred during the 2010 auction when Kieron Pollard’s bidding came to a tie among four franchisees and the then Chairman invited secret bids. Not surprisingly, MI emerged victorious.
In the landmark judgment of Meca Medina and Majcen v Commission, the European Court of Justice (ECJ) established that rules of sporting nature will be subject to The Treaty on the Functioning of the European Union 2009 (TFEU) and further to Article 101 and 102 which pertain to anti-trust provisions. The effect of this ruling was that sporting rules having anti-competitive effects will need to be proven to have no far-reaching consequences than immediate objectives and thus are not exempt from anti-trust lawsuits.
In Blackler v New Zealand Rugby Football League, the facts were appellant was a rugby player who had shifted to Australia from New Zealand and aimed to start playing in NZ. An international agreement required that any player desiring to play for a different nation should seek consent of his home league. New Zealand Rugby League implemented locally the provisions of the International Agreement. He was denied consent. One of the contentions was that the rules were invalid for being a restraint of trade and that the respondent was an administrator of sports and not a trading body therefore restraint of trade has no application. The court observed as a matter of principle, that we can intervene when a body administrating a sport exercises such a power which prevents its players from seeking employment abroad without its consent. The doctrine’s application has been extended to professional sports in the case of Eastham v. Newcastle United Football Club (1964, Ch. 413). The court held the restraint void as it did not protect any reasonable interest of the Rugby League. Players can be transferred only by payment of a fee and the maximum fee payable should be established by rule so that transfers remain competitive.
Ending cash transfers for players in Football is a strong argument that also raises anti-trust concerns. The International Federation of Professional Footballers (FIFPRO) had also filed an anti-trust lawsuit in the European Commission (EC) alleging that the transfer system violates competition law. The union alleged that this system creates an economic and sporting imbalance and brings gains for only the richest clubs. The lawyers argued this system gives abusing power to elite clubs who can afford hefty transfer fees. It has a restrictive effect on players.
Stefan Szymanski in his paper, “The economic arguments supporting a competition law challenge to the transfer system” highlights the anti-competitive effects of transfer system. The transfer system promotes abuse of dominance and creates entry barriers for clubs. High transfer fees strengthen the imbalance that exists between wealthy and less wealthy clubs. Research done on football clubs’ performances shows a high correlation between transfer fee spent and league position. For example, the rise of Manchester City in the English Premier League post-acquisition by Sheikh Mansour in 2008.
In North America, the National Hockey League (NHL) has generally banned cash trades. The National Basketball Association (NBA) involves cash trades for players but the amount that can be spent collectively by each club is capped which prevents franchise owners with deep pockets from buying superstar players from other teams with direct money.
Anti-Competitive Analysis of Transfer Fees from Indian Perspective
Since the transfer process involves an agreement or transaction, Section 3(1) of the act prohibits any agreement including an arrangement that causes or is likely to cause an appreciable adverse effect on competition (AAEC). Section 3(3)(b) prohibits agreements that limit or control market or provision of services. Despite such transfers being done outside the auction procedure, it raises anti-competitive concerns since such agreements to transfer players limit the market of players available for purchase in auction for other teams and along with that restrict the service of a player in context of both service as a player and chance to access service of a player for a team. This hampers the stakes of other teams to purchase and build a competitive team.
Section 4(1) prohibits abuse of dominant position. Section 4(2)(c) provides that an enterprise or group shall indulge in such abuse if it engages in a practice that results in denial of market access in any manner. Explanation to Section 4 defines dominant position as a position of strength enjoyed by an enterprise in the relevant market which enables it to operate independently of competitive forces prevailing in the relevant market. A comprehensive analysis of the provisions leads to the conclusion that the whole transfer system promotes such abuse. To check from the three-fold test viewpoint, the following observations stand:
- Relevant Market – For our purpose, it is the market for player services during the transfer window of IPL.
- Dominant Position – Section 19(4) lays down factors for determining dominant position. Clause (b) and (d) refer to resources and economic power. This means teams owned by owners with hefty size, resources, and economic power are in a dominant position.
- Abuse of Dominance – MI is owned by a subsidiary of Reliance which is the largest Indian company in terms of Market Capitalization. Teams having economic power can abuse their position by purchasing players outside the auction process thus circumventing the checks present in the auction process like a cap on spending amount of each franchise and competitive forces involved in an auction process.
Anti-Competitive Aspects from a Consumer’s Perspective
Professor Stephen F. Ross offer a unique perspective on analyzing sports agreements from the consumer/fan’s lens. In his article, “Anti-competitive aspects of sports,” he argues that agreements that limit competition for players harm fans by deteriorating the competitive balance among teams. The only justification for labour market restraint is promotion of competitive balance among teams so that each team has a chance to win every few years. In the case of Union Royale Belge des Societes de Football Association (ASBL) v Bosman, it was held that the demand for huge amounts of transfer fees and inability to meet it violates the right to free movement of workers and restricts access to market for players.
Sports leagues within their domestic markets like IPL do not face competition from reasonable substitutes and this allows them to exercise economic power over fans. For instance, during the 1920s, the New York Yankees dominated Major League Baseball which led to attendance problems as fans got frustrated due to lopsided, predetermined affairs showing no competitive balance on field.
Conclusion
Uncapped transfer fees and transfer process apart from auction raise anti-competitive concerns as the arguments presented in this article try to explain the same. Such transactions between franchises to trade players also harm consumers’/fans’ interest as argued earlier. Section 19(3)(d) supports this contention. This defeats the basic purpose of auction. Whether it is viewed from the perspective of Section 3 in context of transactions, or from Section 4 in context of dominant position of some franchisees, this legal horse-trading favours rich behemoths. The cheque book warfare must end.
(This post has been authored by Kaif Anwar, a student at Campus Law Centre, Faculty of Law, University of Delhi.)
CITE AS: Kaif Anwar, ‘Exploring the Anti-Competitive Dynamics of the IPL Trade Window: A Legal Analysis’ (The Contemporary Law Forum, 25 June 2024) </tclf.in/2024/06/25/exploring-the-anti-competitive-dynamics-of-the-ipl-trade-window-a-legal-analysis/date of access
It reveals the players trade in sports is a global issue. And in this malpractice very huge transfer fee like more than 100 crores, is not only anti-compatitive but also a slap on the spirit sports. Therefore strict regulations is needed to ensure fairness and the true spirit of competition.