I.
Introduction
The Competition Commission of
India (“CCI”) has, in its order dated February 8, 2013 (“Order”), found the Board for Control of Cricket (“BCCI”) violative of certain provisions
of the Competition Act, 2002 (“the Act”)
in connection with it’s conduct in the organization of Indian Premier League (“IPL”).
The CCI was seized on a private compliant by one Mr. Surinder Singh
Bhamri (“Complainant”) under the
provisions of Section 19 (1) of the Act.
The Director-General (“DG”)
investigated the matter upon the aforementioned compliant and the directions of
the CCI. The CCI passed the Order at the conclusion of investigation by the DG.
The Order is unique in as much as
it concerns application of the competition principles in the context of a very
specific “product”, Cricket and to a sports body governing its “supply” in
India. The following is the analysis of
the Commission’s Order and the salient points discussed therein.
II.
Facts
The
BCCI is a society registered under the Tamil Nadu Societies Registration Act,
1975 with the primary objective of controlling the game of cricket in India,
promoting the game in India, framing the laws of cricket in India, and
selecting teams to represent India in test matches, ODIs, and Twenty 20 matches
played in India or abroad. It is “Full Member” of the International Cricket
Council (“ICC”), the global
governing body for the sport of cricket. The IPL is a professional cricket
league tournament conducted by the BCCI. The allegations of the Complainant
centered on the organization of IPL and the irregularities in granting various
rights associated with IPL, in the nature of franchise rights, media rights and
other sponsorship rights. Since the BCCI conducts (and controls) the conduct of
IPL, the BCCI was named as the Opposite Party.
III.
Investigations &
Findings of the DG
The DG
investigated the matter with respect to the following issues:
1.
Whether
the Act applies to BCCI? Whether BCCI is an “enterprise” within the meaning of
the Act?
2.
What
would be the “relevant market” in the said case?
3.
Whether
the BCCI had a dominant position in the relevant market as determined?
4.
If so, Whether the BCCI has abused its
dominant position in the relevant market in contravention of the provisions of
Section 4?
The DG
concluded seriatim with respect to the bullets above that---
A.
BCCI’s
activities related to IPL such as grant of franchise rights, media rights and
the sponsorship rights are in commercial sphere and the whole tendering process
for such rights is motivated by profits. As such, the DG concluded that BCCI is
an “enterprise” within the meaning of the Act.
B.
The
“relevant market” for the purposes of the Act in the context of this case is,
“the underlying economic activities which are ancillary for organizing the IPL
Twenty 20 cricket tournament being carried out in the aegis of the BCCI.
C.
BCCI
is a national governing body for all types of cricket activities in India. It
is a member of the ICC and has the authority to select players, umpires and
officials to participate in international events and exercises total control
over them. Without its approval, no
recognized competitive cricket involving BCCI contracted players can be hosted
within or outside the country. The DG
therefore inferred that the BCCI is in a position of dominance in the relevant
market.
D.
With respect to the issue whether the
BCCI abused its dominant position, the
DG inferred as under :--
a.
Issue
as to Grant of Franchise Rights :
i.
The
DG found that the BCCI acting through its then IPL Commissioner had engaged in
the attempt of bid-rigging.
ii.
On
the second count, the DG found that the franchise rights were given to the
franchisees “till the IPL continues”.
The DG inferred the aforesaid expression to mean that the rights were
contracted infinitum, or in perpetuity.
iii.
The
DG also found that the minimum franchise
fees (fixed at USD 50 million) was a very high capital cost of entry, and that
the franchise agreements were loaded in
favor of the BCCI and that franchisees had no say in the matter.
iv.
In
summary, the DG found that the BCCI in granting the franchise rights agreements
in connection with the IPL, contravened Sections 4 (2) (a) (i), 4 (2) (b) (i)
and 4 (2) (c) of the Act. [1]
b.
Issue
as to Grant of Media Rights :
The
DG found that of the six companies that bought the tender documents, only
three, WSG, MSM/ Sony and ESPN Software India submitted the bid. WSG later
approached MSM/Sony for a joint bid.
MSM/Sony agreed to the offer and withdrew their bid in their own
capacity in lieu of the consortium bid with WSG. ESPN Software India’s bid was held to be
ineligible which left only the MSM/Sony/WSG consortium (“Consortium”) in the fray. The Consortium won the bid and the BCCI
entered into agreements with the Consortium separately in connection with the
media rights
However,
on March 14, 2009, due to certain breaches by Sony, the BCCI terminated the
agreement with Sony. Consequently, the
affiliate agreement with WSG that concerned media rights for the territories
other than India also terminated. A
second India territory agreement was signed by the BCCI with WSG Mauritius, an
affiliate entity of the WSG, granting it rights for India territory through
2017. However, on the failure of WSG to
comply with the requirement that it sub-license the rights under the agreement
within seventy-hours of the signing of the agreement, this agreement was
terminated by the BCCI as well.
A
third India territory agreement was entered into by the BCCI, this time, again
with Sony/MSM and the latter was licensed broadcasting rights to the IPL from 2009 through 2017 (The 3RD India territory agreement). The basis of the 3RD India
territory agreement has been challenged and is under litigation at the Bombay
High Court, as of the date of the Order.
Meanwhile,
a fresh “Invitation To Tender” was floated in 2011 for auction of media rights
to broadcast IPL to territories outside India, and the BCCI granted the same to
the consortium of Times Internet and Nimbus through an agreement dated March
20, 2011.
Based on the
aforementioned and related facts, the DG arrived at the following conclusions:
i.
The
DG found that, the first meeting of the tender committee was postponed from 11
AM to 1 PM in order to facilitate and allow WSG and Sony to form a consortium.
ii.
Though
Sony and WSG had both submitted a bid in their own capacity, they were
permitted to form a consortium to enable their bid.
iii.
The
duration for which media rights have been contracted away (10 years) is too
long and causes foreclosure of the market.
iv.
The
3RD India Territory Agreement was entered into with the same party,
Sony that was guilty of breaching the earlier agreement(s) respecting the
broadcasting rights to the IPL, within eleven (11) days, without following any
tender process.
v.
In
summary, the DG found that the BCCI had violated Section 4 (2) (a) and Section
4 (2) (b) of the Act.
c.
Issue
as to Grant of Associate Rights :
i.
The
DG found that associate sponsorship rights were awarded to various companies
without following any tender process, on a private placement basis. The DG
found on the basis of information submitted by various franchisees that the
BCCI also “facilitated” the award of contracts from various franchisees to
various vendors that the franchisees entered into agreements with.
ii.
The
DG concluded that on the basis of aforementioned evidence that the BCCI
contravened Section 4 (2) (c) of the Act.
IV.
Analysis & Findings
of the Commission
The
Commission analyzed the sports sector in India,
the background of the BCCI, its institutional form and the linkages it
has with the ICC and the approach the government of India retained towards the
BCCI that :
A.
The
historical evolution of the BCCI has enabled it to attain a monopoly status, a
first-mover advantage, in the organization of cricket events in India.
Furthermore, the recognition of the Government of India, as the sports body in
charge of cricket in India has cemented BCCI’s monopoly status.
B.
The
institutional form of BCCI as a registered society is of not much relevance to
the analysis as to whether the BCCI is a de facto regulator or otherwise. What
is important is the conduct of the organization rather than the form in which
it operates. The Memorandum of
Association of the BCCI state that its object is to control the game of cricket
in India. The Commission held that this clearly meant the BCCI was a regulator
of sport in the country, and that the bye-laws of the ICC make it further clear
that this is the case.
C.
The
Government of India has for all practical purposes treated the BCCI as the
“national association for sport of cricket” in India.
Based on the aforementioned
findings, the Commission inferred that the BCCI is a de facto regulator of
cricket in India (and therefore in a dominant position) in India.
The Commission then considered
the following questions:
1.
Whether
the BCCI is an enterprise for the purposes of the Act?
2.
Whether
BCCI has abused its dominant position in India?
The
Commission inferred seriatim with respect to the above questions as follows:
A.
The
Commission quoted the definition of the expression, “enterprise” from the Act [2]
and found that contrary to what BCCI had contended, there is nothing to suggest in the definition of
“enterprise” that would require only for
profit organizations only to be covered therein. It observed that the Act
focuses on the functional aspects of an entity rather than the institutional
aspects. The nature of the activity
would determine if a person were an “enterprise” or otherwise under the Act.
Thus, the ‘not for profit’ form of the BCCI would not per se be a bar without
more for it to be an “enterprise” within the meaning of the Act. It also drew on international and national
jurisprudence that the DG has relied upon to infer the same.
B.
Before
going into the question as to whether the BCCI abused its dominant position,
the Commission discussed the pre-cursor issue of a “relevant market”. This was because, Section 4 of the Act
defines a “dominant position” in the context of a “relevant market” [3]. The
Commission found the following with respect to the relevant market :
a.
After
noting the definition of “relevant market” from the Act, the Commission noted
that the Act emphasizes the idea of a “relevant market” to be seen from a
demand perspective, and based on its product price and its intended use. On
further analysis and inferring from TRP data comparing cricket with other forms
of entertainment and other sports broadcast on television, (in which analysis, it found that the
audience overwhelmingly preferred cricket to any other sport or entertainment during IPL), the Commission found that cricket is
not substitutable with other sports and
other forms of entertainment events. After concluding as aforementioned, the
Commission examined if there were any inherent differences between the two
broad categories of events that cricket as a product is sub-divided into. It
inferred that there are two categories viz, first class cricket or
international cricket, and the private professional league cricket.
It
noted that private professional league cricket is in effect a packaged product
of cricket and entertainment where revenue generation is the primary objective
and held that in the context of this complaint about abuse of dominance of the
BCCI in connection with IPL, the relevant market would be the market for
organization of private professional cricket leagues in India.
Having
determined the relevant market to be the private professional cricket leagues
in India, the Commission moved on further to the question of whether the BCCI had abused its dominant position in the relevant market,
b.
The
Commission noted that BCCI as the de facto regulator is vested with some rights
by the ICC. Inter alia, such powers of
the BCCI included the powers to “sanction/ approve” cricket events in India,
and that the approval of the BCCI was a necessary ingredient for “ICC
recognized” cricket to be played in India.
In the absence of approval from the BCCI, any cricket played in India
would be “Disapproved Cricket” within the meaning of Clause 32 of the ICC
Bye-laws.
Furthermore,
the Commission inferred from a bare reading of the relevant sub-clauses of Clause
32 of the ICC bye-laws that, the BCCI was covenanted by the ICC to ensure, “to
the greatest extent permissible under applicable law” that,
i.
Not
release or permit any players, match officials, coaching or management staff
contracted to the member to participate in any way, in any form of “disapproved
cricket”.
ii.
Prohibit
the participation by organizations and individuals under its jurisdiction to
participate in any form of “disapproved cricket”.
iii.
Prohibit
organizations within its jurisdiction from releasing or permitting any players,
match officials, coaching, and management staff contracted to them to
participate in any form of “disapproved cricket”.
Since
all the three heads specified above would be vital and necessary inputs for any
organized private professional cricket league to prosper in India, approval of
the BCCI is absolutely critical for any private cricket league to be
commercially viable in India.
Having
assumed this regulatory role over any private professional cricket league in
India, the Commission found the BCCI’s ownership of IPL as conflicting with its
regulatory role leading to its inference that the BCCI was in fact abusing its
dominant position by executing negative covenants to the following effect with
the vendors sponsoring the IPL. For instance, the Commission found that the
media rights agreement had the following clause:
“BCCI represents and warrants that it shall not organize, sanction,
recognize or support during the Rights period, another professional domestic
Indian T20 competition that is competitive to the league”
The Commission also
found that the ICC Rules promote its members enter into such negative covenants
to ensure that “there is generation of
commercial income for distribution throughout the sport.” [4]
The
Commission inferred on the basis of the aforementioned reasoning the BCCI has
abused its dominant position in contravention of Section 4 (2) of the Act. It
then passed the following order:
A.
To
cease and desist from any practice in future, denying market access to
potential competitors, including inclusion of similar clauses in any agreement
in future.
B.
To
cease and desist from using its regulatory powers in any way in the process of
considering and deciding any matters relating to its commercial
activities. To ensure that BCCI will set
up effective internal control system to its own satisfaction, in good faith and
after due diligence.
C.
To
delete the violative clause in the Media Rights Agreement.
D.
Penalty
of Rs. 52.24 Crore.
V.
Implications
A.
What About Creeping Denial of Market Access?
It appears that the
“cease and desist” direction would require the BCCI to decide on the proposals
to commence private professional cricket
leagues submitted to it, in good faith
and without regard to the existence of the IPL.
Furthermore, since the
approval to organize a private professional cricket league would be illusory
without the three vital inputs, players,
cricket stadia and other
personnel related to the sport of cricket including coaches, match-officials,
management staff and affiliate organizations that are bound to the BCCI, BCCI
is essentially required to renegotiate contracts with all such personnel (including the vital
pool of cricket players that are bound
to it to play international and national events within its jurisdiction) and organizations
owning cricket stadia and delete such negative covenants as would bind those
personnel from participating in such
proposed rival leagues.
One might ask however
if deleting clauses foreclosing players’ liberty to play “non-ICC” cricket would
serve any practical purpose or otherwise release players and personnel
previously affiliated to the BCCI to play in any league of their own free
will. This is because, as the Member of
the ICC, it retains the powers to select the players for the national team. It
may very well prescribe its “own” events as the events which would be relevant
for the purposes of team selection for international events. Or short of
explicitly prescribing as foregoing, it may purely in practice only choose such
players as play in its “own” league or events.
Detection of such “creeping denial” of market access would be extremely
difficult and therefore difficult to prosecute.
In other words,
arbitraging the “cease and desist” limb of the Order would be easy. In effect
therefore, players choosing to play for rival leagues would be required to choose
between Club and Country. In much the same way as they were hitherto.
B.
Chinese Walls Can Leak
The second limb of the
Order mandates the BCCI to institute effective internal controls to ensure that
the commercial imperative of IPL does not create perverse incentives for the BCCI
to engage in either regulatory overreach or regulatory forbearance. In effect, the Commission requires the BCCI
to institute Chinese walls in its organizational set up so that its regulatory
role is cabined and isolated from the arm that manages its commercial
activities. It remains to be seen
whether the Chinese wall remedy proves effective.
C.
Section 28 Relief Not Offered
It is arguable that the
Commission should have required the BCCI to spin off the IPL operation entirely
and hive it off in a separate structure. Antitrust authorities are empowered to
issue conditional approvals contingent on such hive-offs. It is pertinent to note that, Section 28 of
the Act confers powers to “direct
division of an enterprise enjoying dominant position to ensure that such
enterprise does not abuse its dominant position.” However, the Commission chose not to use its
powers under Section 28 basing its reliefs under the milder remedies prescribed
by Section 27.
Interestingly, Section
28 would foreclose creeping denial of market access that this discussion
flagged off earlier. Once the BCCI has no pecuniary advantage that it presently
enjoys from organizing IPL, its incentive to constructively foreclose market
access for rival leagues through strategic actions like blockage of player and
stadia calendar or following discriminatory selection policies would be
considerably reduced.
D.
International scenario
As the Commission
itself notes in several times in the Order, sports bodies and antitrust law
have had some history in other jurisdictions as well. In the United States,
baseball, America’s national pastime, and antitrust have called it a truce.
Accordingly, under the so called antitrust exemption, Major League Baseball
(“MLB”) is exempted from the application of antitrust law since the Supreme
Court’s 1922 holding that baseball “was entertainment, not commerce”. [5] It
seems that at least for now, India’s national pastime will enjoy no such luck.[6]
[1] Section 4 (2) (a) (i)
provides that, There shall be an abuse of dominant position, if an enterprise
or a group directly or indirectly, imposes unfair or discriminatory condition
of purchase or sale of goods and services.
Section 4 (2) (b) (i) provides
that, There shall be an abuse of dominant position if an enterprise or a group
limits or restricts, production of goods or provision of services or the market
therefor.
Section 4 (2) (c) provides that,
there shall be an abuse of dominant position if an enterprise or a group,
indulges in practice or practices resulting in denial of market access.
[2] Section 2 (h) defines
enterprise as, a person or department of the Government, who, or which is, or
has been engaged in any activity, relating to
the production, storage, supply, distribution, acquisition or control of
articles or goods, or the provision of
services, of any kind, or in the investment or in the business of
acquiring, holding, underwriting or dealing with shares, debentures or other
securities of any other body corporate, either directly or through one or more
of its units, divisions, subsidiaries, whether such unit, division, or
subsidiary is located at the same place where the enterprise is located or at
different place or different places, but does not include any activity of the government relatable to the sovereign
functions of the Government including all activities carried on by departments
of the Central Government dealing with atomic energy, currency, defence and
space.
[3] Section 2 (r) of the
Act defines relevant market, means the market which may be determined by the
commission with reference to the relevant product market or the relevant
geographic market or with reference to
both the markets.
[4] P.38 of the Order.
[5] 259 U.S. 200 (1922)
[6] It
must be noted in the passing that all other sports, except professional
baseball are subject to antitrust laws. See, 352 U.S.
445 (1957) (professional football), 351 F. Supp. 462 (E.D. Pa. 1972) (Hockey),
389 F. Supp. 867 (S.D.N. Y. 1975) (Basketball).
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