Employment & Labor Insider

A recent report from the government of the United Kingdom proposing a governmental regulatory body to oversee English football (what Americans know as soccer) should be perplexing for those who value the free market or who understand the legal structure and operations of American sports leagues. 

The report, from the Department for Culture, Media & Sport, responds to two principal concerns: (1) a series of bankruptcies and near bankruptcies by English clubs; and (2) the proposed European Super League, which threatened to draw the best English clubs farther away from the traditional English football system, in which clubs can be promoted and relegated through multiple levels. 

The proposed “Regulator” would license and regulate the 116 clubs in the top five tiers of English football, including through close and regular inspection of owner and club financials, with the authority to intervene and sanction if necessary.

As an initial matter, the introduction of such a comprehensive government regulatory scheme merits scrutiny under free market principles, particularly in the lands of Adam Smith and Margaret Thatcher.  It is generally accepted in classical liberal economic thinking that the state should intervene only where there has been a market failure – that is, where the free market is unable to produce a socially desirable outcome. 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 that we collectively desire.

Indeed, the U.K. believes there has been a market failure in this instance. In the report, it argues that “[g]overnment intervention is needed” because “[t]he free market does not properly account for the full social value of clubs to their fans and communities, and industry self-regulation has remained inadequate despite countless opportunities to reform, and plenty of time to do so.”

The claim of a market failure should ring hollow to American sports professionals. One of the major reasons cited in the report for the financial problems of English clubs is player salary costs. The clubs engaged in an arms race that many of them could not afford and which was financed either with debt or the cash of questionable characters. The report dismisses salary caps, claiming that they “would not build resilience to shocks into clubs’ finances and operations.” However, the 92-page report never once mentions American sports leagues or the fact that they have successfully implemented a range of salary cap or control schemes.

More specifically, the report does not mention the way in which American sports have largely engaged in successful self-regulation: collective bargaining. American sports leagues are, in large part, governed by the terms of the collective bargaining agreements negotiated with their counterpart players’ unions.  In these agreements, the clubs are able to create rules that restrict player salaries to levels that the clubs believe are affordable. Although such rules would ordinarily be subject to antitrust scrutiny, generally speaking, when they are negotiated with a union they are protected by what is known as the “non-statutory labor exemption.” In exchange for these restrictions, the players generally get a guaranteed share of the leagues’ revenues and other benefits. As a result of this system, the clubs remain financially healthy and there is a shared purpose in increasing league revenues.

I believe this model is available in English football, though Brexit has complicated matters. The right of workers to unionize and bargain collectively is protected by both U.K. law and the European Union’s Charter of Fundamental Rights. Consequently, unions are commonplace in English society, as are the labor agreements they negotiate with their employers. Indeed, English players are unionized through the Professional Footballers’ Association.  Finally, E.U. law has recognized a non-statutory labor exemption and the need to evaluate sports organizations more deferentially under antitrust/competition law. More on these issues is available here, here, and here.

Nevertheless, E.U. competition law generally ceased to apply in the U.K. on January 1, 2021. Instead, the U.K. has reverted to operating under its 1998 Competition Act, for which there has never been any type of recognized exception related to sports. Be that as it may, the case for some type of exception for English football is strong, particularly if U.K. courts and regulators were to examine the American and E.U. law on the issue. More specifically, there is a strong legal basis for exempting player salary caps from competition law if they are agreed to by the PFA. 

Seemingly for cultural reasons, the PFA and English clubs do not operate under collective bargaining agreements.  But to avoid government intervention and regulation, it seems they should reconsider their legal options.