Dilemmas in disciplining and regulating sports: the need for action

Arjo Klamer, professor of cultural economics, Erasmus University

Dolf Segar, Lawyer, CMS

 

Sports enable individuals to exercise their bodily talents. They galvanize communities, energize people, are an outlet for communal sentiments, shape national and local identities, produce shared stories, and gather people of all kinds of backgrounds for a common cause.  Sports are also good for drawing attention and are increasingly a source of income, if not financial richness.

Accordingly, while young people all over the world are running across fields, wrestle, jump, skate, play, compete to enjoy themselves, we witness more and more financial malpractices, forms of abuse and exploitation, the influence of drugs, corruption, sexual abuse, and other practices that spoil the game. The question is how to respond to such malpractices. Who should respond? Should that be governmental institutions like courts, or should sports organizations be the ones to take responsibility? And what kind of rules should those responding agencies have to issue? When all those questions are answered, we can deal with the issue of compliance, that is, how athletes and sport clubs are held to the rules and are controlled for their adherence to, or complying with, the rules.

The situation in the sports world is far from clear right now. We observe a mixture of systems each of which has its own logic. That is why the answer to questions about compliance is far from obvious, certainly if we compare this world with the world of finance, for example, or accounting.  In this paper, we try to sort out some of the confusion by providing a simple model. We discuss a few cases to bring out the complexity of compliance issues in the sports world, and make suggestions for pursuing the matter further.

 

The goals of sports

When we evaluate and judge practices, we need to know what the practices are good for. Say that sports are about making money, and not, let’s say, about playing sport, that would make a difference.

When we survey the mission statements of various sports organizations, we do not encounter profit making as a goal. For example, the mission statement of FIFA is about building a better future and the development of football everywhere. Football, according to FIFA, has the power to bring people together and to break down barriers, to improve standards of education, health and sustainability and to raise living standards and quality of life across the world.

They make clear that sports are about sports, about enabling people to exercise skills, to compete with others for the sake of the game. Sports constitute a practice that people value for itself. Sports is about physical activity, often in social settings.

Sports have become more than that. We observe furthermore that local governments and businesses get involved, usually with financial means, because they appreciate sports for the social values. Sports brings people together, shape and strengthen community spirit, contribute to local and national identities. Accordingly, sports are good for social and sometimes even cultural values. Politicians, businesspeople and people in general may value sports because they consider it important that people have something in common, that they have shared stories and memories (remember the hand of God of Maradona, or the way Usain Bolt runs with his long legs?)

 

The danger of mission drift

But sport is also about winning. And increasingly it is about the financial means that are needed to win. And because of the financial means it is increasingly about drawing attention. Because attention by way of the brand recognition (think if the t-shirts of Manchester United, or the name recognition of a Nadal, and what those brand names are worth) more financial means are needed to generate brand recognition.  Paris St- Germain has a reputation that draws (foreign) financiers, who subsequently contribute large financial resources to purchase another brand name (the player Neymar) to strengthen the brand name of Paris St-Germain and thus to guarantee further financial resources by way of television rights, sponsor incomes, and commercial merchandise (t-shirts with the name of Neymar and the logo of Paris St- Germain.)

Because of the increasing emphasis on the financial means, the pressure of winning increases, too. That leads to all kinds of excesses. We name a few.

-Drug use to bolster performance (Lance Armstrong)

-Dubious financial practices and even outright malpractices (we present some examples of the financial practices in modern football)

-Exploitation and abuse of athletes (teams trading in young players for future gain, countries purchasing athletes from other (African) countries to boost their prestige to end up maltreating, underpaying, and discarding them when their performance falls short of the (usually unrealistic) expectations.

-Corruption in (international) sports organizations, including favoritism and nepotism.

-The use of bribes in bids for the organization of international competitions.

-Unfair competition, exclusion of others willing to compete, collusion

-Unfair financial support by local or national governments.

-Oligopolies, or the formation of a few financially powerful organizations that make it almost impossible for other organizations to compete at the same level.

 

When financial goals overtake the aforementioned goals of sports we could speak of mission drift.  The danger is that the accumulation of financial means becomes the overriding goal. The sports world where this occurs becomes to resemble more and more the financial world. The experience in that world is that if people are not strictly bound to a set of well-articulated rules, financial malpractices, extortion, and self-enrichments schemes become part of normal business. Certain segments of the sports world appear to be dangerously close to that reality.

That is a reason to consider the development of disciplinary mechanisms that impede individuals and organizations to go that way.

 

 

A 5 sphere model.

 

The sports world is complicated when it comes to the imposition of rules and the compliance to those rules. The reason is that it is strongly rooted in local communities and therefore not always susceptible to legal rulings. Even if top sport is to a great extent uprooted and operates in an international context, it still is subjugated to local and national conditions. Top athletes continue to celebrated in their hometown and they still represent their countries (more or less).

 

We use a 5 spheres model that Klamer explains in Doing the Right Thing: A Value Based Economy (Ubiquity Press, 2017). The five spheres are: 1) the sphere of the oikos, or home (O), 2) the social sphere or the society (S), 3) the market sphere (M), 4 the sphere of governance, or organizations (G), and 5) the cultural sphere (C), or the sphere where meanings are generated, knowledge comes about and shared identities are formed.

Sports are firmly rooted in the social sphere (S). They form what is called a common, a shared practice. Kids go out of the house to play with each other. They play games and at one point will join a club or form a club to develop their skill and enter a competition with members or teams of other clubs. In such a social setting behavior is regulated and disciplined by means of a social logic. When someone plays false, others will admonish him, or even banish him from the game. In informal games, players will referee themselves. When there is a general agreement that someone committed a foul, they will correct the action. When the games become more serious, or take place in the context of an organized competition, certain individuals, usually members of the clubs, will be disciplinary agents, usually called referees. When more serious faults are committed, or forms of corrupt behavior are detected, clubs will do the disciplining, usually by way of specially appointed disciplinary committees.

In such a logic good behavior is stimulated and enforced socially; bad behavior is disapproved of, disciplined and punished socially.

When sports become public, that is, when they become public spectacles with tribunes around the fields populated with people who are watching the athletes doing their thing, the social logic is still at work. Supporters will express their approval and their admiration for what the athletes do. When they consider behavior inappropriate they will express their disapproval by yelling, whistling, or by staying away. Social is also the disciplinary working of the press. Bad press can destroy the reputation of athletes, so they have to be careful not to generate negative press. Getting caught while driving under influence can destroy an athletes career as is being filmed behaving badly and posted on social media.

 

The oikos (O, the sphere of home, of family) is an important disciplinary force as well. In their early years athletes find exemplars for their behavior in that of their parents. Often parents will stimulate, and coach them in the beginning. In some cultures, more than others, talented athletes will find their most important support in the circle of their family. In such a logic families are an important force in the life of athletes.

 

The cultural context matters, too. This is the C in the diagram. It is the cultural context that determines, for example, the public appeal of a sport, its importance for local or national identity, and at times the nearly religious connotation that the love for a club has. National identities matter. A cyclist is much more a public figure in the Belgian culture than in for example Kenia, or the US for that matter. An American football player can be a hero in the US, but will be a non-entity in Europe. A southern-European culture will support a hero status more than a northern-European culture. Some cultures tolerate nepotism more than others. In some African, Southern-American and Asian cultures not giving the job to a family member, even if he or she is less qualified than others, would be considered a scandal, at least within one’s own family. Would a Dutchman or a Swede be able to head an organization like FIFA? Probably not.

 

The market logic (M) kicks in when transactions are at stake. It starts locally when a business firm pays a club for having billboards around the field or its name on the shirts. Or when a club pays the coach and its top players. At this level, though, transactions are still strongly embedded in a social logic. The owner of the business club is less interested in the extra sales that the advertisements will generate than in supporting his club. And the players may accept the payment more as a gesture than payment for services rendered. All these deals are still subjugated to the social discipline in which sports work

In top sport the market logic does it serious work, though. It shows when people speak of commercial interests, when we witness bidding competitions for sponsorships, for example, coaches or athlethes with price as the main factor in the negotiations. The buying and selling of players, sponsor deals, salaries of coaches, television rights, merchandise are what the logic of the market is about.

As we learn from other sectors, the M logic can work wonderfully well. It has, among other effects, a disciplinary function. Clubs that pay too much for a player are punished with a financial penalty. TV stations that are willing to pay too little—maybe because they are publicly owned—will lose the rights to others who are willing to pay more. The logic more or less dictates that you, the club, the coach, the player, go for the highest bid. Sure, other considerations may weigh in, but usually the price is a decisive factor. Economists appreciate the logic because it compels an equilibrium between supply and demand, and that without the intervention of authority.

However, as we learn in other sectors, markets can fail. This happens when oligopolies or monopolies start dominating a market, preventing a fair competition. Markets can be unfair when a few benefits and a majority is left behind. And markets cannot provide important goods such as community, friendship, or sport for that matter.  A club can compel a player to come by way of a signed contract but it cannot order him to score lots of goals or be a team player.

 

Because of market imperfections as well as limitations of the social logic the application of a governmental logic is necessary.  This happens when a club start designing rules, or when a club professionalizes its organization. In both cases the governance (G) logic kicks in. It will then be more logical to refer a player who is out of control to the rules and the disciplinary measures than to yell at him.

Here comes the tricky part. When has the G logic in the form of laws or governmental intervention to be enacted? And who has to take the initiative? When governments subject sports clubs and individual athlete to its rules, the clubs and athlete will have to comply with those rules and answer to legal entities such as the police and judges when they fail to do so. In that case the legal entities bypass the disciplinary systems in the social sphere that the sports rely on most of the time.

Presently, governmental agencies, national and international, are increasingly keen on including top sports in its logic. The do so because of the malpractices and the various market failures and the inequities. The sports world resists this movement, and governments are reluctant to be consistent and persistent in the enforcement of its rules and laws in respect of the social logics at work.

 

We now discuss a few cases to explore the dilemmas that both the sport world and governmental agencies are currently facing. We begin with the agreements that European authorities reached and stated in the Treaty on the Functioning of the European Union of  2007? We then discuss some examples of financial malpractices in modern football. The question that drives is: how about the compliance?

 

Treaty on the Functioning of the European Union

 

With the Treaty on the Functioning of the European Union (TFEU) it was for the first time that the European Union included in the Treaty a paragraph relating to sport, which founds its origin in the whitepaper on sport of 2007. Before that time the Treaty did not provide the EU tools to adopt legislation for regulating sport. The European Commission and the European Court of Justice were nevertheless already heavily involved in sport related matters, since it concluded that sport has an economic dimension and fall for that reason within the scope of the EU Treaty.

According to article 165 of the TFEU the EU “shall contribute to the promotion of European sporting issues, while taking account of the specific nature of sport, its structures based on voluntary activity and its social and educational function.” (Note the explicit recognition of the social logic at work in the world of sports.)

Paragraph 2 of article 165 adds that action of the EU shall be aimed at “developing the European dimension in sport, by promoting fairness and openness in sporting competitions and cooperation between bodies responsible for sports, and by protecting the physical and moral integrity of sportsmen and sportswomen, especially the youngest sportsmen and sportswomen.”

 

The TFEU therewith provides the EU the opportunity to take action on fairness and openness in sport competitions and to protect minors and moral and physical integrity within the context of the specific nature of sport.

The TFEU supports through article 165 perfectly well the 5 sphere model for sports explained above and especially the spheres defined as Oikos, Social, Governance and Cultural.

 

The market sphere M in our model in sport can be found in case law of the European Court of Justice, starting with Walrave and Koch versus Union Cycliste Internationale  (Case 36/74 [194] ECR 1405). In that decision, a distinction was introduced by the Court between rules of a purely sporting interest that has nothing to do with an economic activity (“rules of the game”) and rules with economic impact. On the first the Treaty is not applicable, on the second it is. (The question, then, what is economic impact? Does a local club have economic impact?)

 

Since the decision in Meca-Medina and Majcen versus the Commission (Case C-519/04 P 18 July 2006) the distinction between purely rules of the game and sporting rules with economic impact has been abandoned. The European Court decided that “the mere fact that a rule is purely sporting in nature does not have the effect of removing from the scope of the Treaty the person engaging in the activity governed by that rule or the body which has laid it down.” All sporting rules, also those that intend to refer to sport only, will therefore have to be assessed against the EU treaty, especially the articles relating to freedom of movement of persons, goods and services, freedom of establishment and competition.

 

In the Meca-Medina decision the Court decided that rules of sport federations that restrict EU law may be justified when they are “limited to what is necessary to ensure the proper conduct of competitive sport”.

 

From the above it may be concluded that according to the European Court of Justice the specific nature of sport (see article 165 TFEU) provides sport federations with a certain degree of sporting autonomy, which allows them to impose on their members rules that although falling within the scope of EU law, are nevertheless accepted because of the special features of sport, necessary to achieve legitimate sporting objectives and/or that are inherent in the organization of sport.

Here, too, the question arises what are legitimate sporting activities? What if sports organizations allow the use of drugs? Or how about turning a sports competition into a competition about financial means? When are financial malpractices of such kind that they fall under the scope of the law?

 

Some examples of financial (mal)practices in modern football.

 

The revelations in 2015 through Football Leaks and other inquiries into football provided us with a look behind the scenes of professional football.

 

We have seen the rules of Financial Fair Play, adopted by UEFA in 2009, that aim to introduce more discipline and rationality in club football finances and to decrease pressure on salaries and transfer fees and limit inflationary effect.

The rules include an obligation for clubs, over a period of time, to balance their books or break even. Under the concept, clubs cannot repeatedly spend more than their generated revenues, and clubs will be obliged to meet all their transfer and employee payment commitments at all times. Higher-risk clubs that fail certain indicators will also be required to provide budgets detailing their strategic plans.

 

But what about the transfer of Neymar from Barcelona to Paris Saint-Germain? UEFA recently announced that the Investigatory Chamber of the UEFA Club Financial Control Body has opened a formal investigation into Paris Saint-Germain as part of its ongoing monitoring of clubs under Financial Fair Play regulations. The investigation will focus on the compliance of the club with the break-even requirement, particularly in light of its recent transfer activity. The transfer of Neymar is likely to fit within the UEFA Financial Fair Play rules, but the question remains whether UEFA should accept that the individual more powerful clubs find ways around the rules and regulations that are imposed to safeguard the financial health of the business model of the entire football industry. One can hardly say that the aim of the rules to “decrease pressure on salaries and transfer fees” has been achieved in this transfer.

 

We have seen the Third Party Ownership-ban by FIFA of December 2014, “in order to protect the integrity of the game and the players,” by adding a new article to the FIFA Regulations on the Status and Transfer of Players:

“No club or player shall enter into an agreement with a third party whereby a third party is being entitled to participate, either in full or in part, in compensation payable in relation to the future transfer of a player from one club to another, or is being assigned any rights in relation to a future transfer or transfer compensation…”

 

However, the financial pressure on clubs to maintain a top position in its professional league and thus on winning, may lead to excesses and failures to comply with the Third-Party Ownership rules, by using side letters that are not presented to the Football Federations and according to which an investor nevertheless has considerable say over the Club’s transfer policy.

In recent decisions FIFA fined a number of clubs because they were “found to be liable for entering into contracts that enabled a third party to influence the club in employment and transfer-related matters, failing to upload a TPO agreement into the library in TMS, breaching confidentiality rules and failing to declare mandatory information in ITMS”

 

 

Conclusion

 

The question is whether the (social) organizations of sports are able to regulate, monitor and discipline the financial operations of their members. One problem has to be that the members to be regulated and disciplined are usually the influential members with a large say in the organization. With the social logic at work, favoritism and nepotism get easy play. The logics of governments and their laws were invented, to counter such workings of the social logic and to establish a degree of justice and fairness. The difficulty is that the sports world crosses borders and therefore requires intergovernmental action. In view of the increasing attention for financial malpractices, inequality, and competitions that have little to do with sports, it is a matter of time for governments to take over the regulation, monitoring and disciplining of top sports.

 

That, however, could be disastrous for the sports. As noted, sports is a social activity above all. The word of sports has to do everything in its might to keep the disciplining and compliance an internal affair as much as possible. It has to do justice, for example, to cultural differences. Dutch society works different from, say, South African society.

 

The encroachment of financial and national interests in the world of top sport are of such a magnitude that the sports world is becoming unmighty. Other approaches are needed. We advocate forms of partnership between (international) governmental authorities and sports organizations. We see such a partnership working well in the combatting of drugs by way of organizations like WADA. The latter is an independent agency funded by both governments and sports organizations. More of such organizations are needed to stem the further pollution of the games by other games.

 

 

References

Klamer, Arjo. Doing the Right Thing: A Value Based Economy. Ubiquity Press, 2017