A recent UK government report proposing a government regulator to oversee English football (what Americans know as soccer) should be confusing to those who appreciate the free market or the legal structure and workings of American sports leagues understand.

The Department for Culture, Media and Sport’s report addresses two main concerns: (1) a spate of bankruptcies and near-bankruptcies at English clubs; and (2) the proposed European Super League, which threatened to lure the best English clubs further away from the traditional English football system, in which clubs can be promoted and relegated at multiple levels.

The proposed “regulatory body” would license and regulate the 116 clubs in the top five tiers of English football, including through close and regular reviews of owner and club finances, with the power to intervene and impose sanctions where necessary.

First of all, the introduction of such a comprehensive system of government regulation deserves free market scrutiny, particularly in the countries of Adam Smith and Margaret Thatcher. In classical liberal economic thinking, it is generally accepted that the state should only intervene where there is market failure – i.e. where the free market is unable to achieve a socially desirable result. For example, governments regulate pollution and the environment because a world in which individual actors act in accordance with their best interests is unlikely to produce the clean air and water we all desire.

In fact, the UK believes there is a market failure in this case. The report argues that “[g]Government intervention is required” because “[t]The free market does not properly take into account the full social value of clubs to their fans and communities and the industry’s self-regulation has remained inadequate despite ample opportunities for reform and plenty of time to do so.”

Claims of market failure may sound hollow to American sports professionals. One of the main reasons given in the report for English clubs’ financial difficulties is the cost of wages for players. The clubs engaged in an arms race that many of them could not afford and which was financed either with debt or the money of questionable figures. The report rejects salary caps, claiming they “would not build resilience to shocks in clubs’ finances and operations”. However, the 92-page report makes no mention of American sports leagues or the fact that they have successfully implemented a number of salary caps or control systems.

More specifically, the report fails to mention the way in which American sport has largely championed successful self-regulation: collective bargaining. American sports leagues are largely governed by the terms of collective bargaining agreements negotiated with the players’ unions. In these agreements, clubs can set rules that limit player salaries to a level that clubs consider affordable. Although such rules would normally be subject to antitrust scrutiny, when negotiated with a union they are generally protected by what is known as “unstatutory time off”. In exchange for these restrictions, players typically receive a guaranteed share of league revenue and other benefits. As a result of this system, clubs remain financially healthy and there is a common goal of increasing league revenue.

I believe this model is available in English football, although Brexit has made things more complicated. Workers’ rights to organize and bargain collectively are protected by both UK law and the European Union’s Charter of Fundamental Rights. Consequently, unions are commonplace in English society, as are the employment contracts they negotiate with their employers. In fact, English players are unionized through the Professional Footballers’ Association. Finally, EU law has recognized non-statutory exemption from work and the need to evaluate sports organizations more respectfully under antitrust/competition law. You can find more about these topics here, here and here.

Nonetheless, EU competition law generally ceased to apply in the UK on 1 January 2021. Instead, the UK is again operating under its 1998 Competition Act, to which there has never been any recognized sport-related exception. Be that as it may, there are strong arguments for some sort of exemption for English football, particularly if UK courts and regulators should examine US and EU law on the issue. More specifically, there is a strong legal basis for exempting player salary caps from competition law when approved by the PFA.

Apparently for cultural reasons, the PFA and English clubs do not work under collective agreements. But to avoid government intervention and regulation, they should reconsider their legal options.

Photo credit: From flickr, Creative Commons license, English football match (Arsenal vs. Sunderland) by wonker.

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