Competition law increasingly critical for talent focused industries

The landscape of competition law enforcement is undergoing a significant shift, with a growing focus on labour markets. This trend, once largely neglected and even dismissed as "hipster antitrust," has recently received three major boosts, signaling a clear intent from authorities to view workers as market participants rather than mere inputs. This embrace of a more inclusive and socially sustainable approach to competition policy is a welcome and overdue development, reflecting a broader understanding of how market power can impact individuals' livelihoods.

Recent pivotal actions underscore this shift:

• The European Commission's substantial fine of €329 million imposed on Delivery Hero and Glovo: targeted a cartel in the online food delivery sector. This case is crucial because it highlights how anti-competitive practices, such as agreements not to poach employees and market division, can directly harm workers.

• The French Competition Authority's fines against multiple operators in the engineering, technology consulting, and IT services sectors: demonstrates a broader recognition of monopsony concerns across various industries, impacting not just gig economy workers but also white-collar and specialised labour markets where employers might exert undue power.

• Attorney General Emiliou's opinion in the Portuguese footballers case:  underscores the increasing willingness to scrutinise labour market dynamics in professional sports through a competition law lens.

  
  

Collectively, these cases demonstrate a continued appetite for tackling monopsony cases (when a single buyer (or a small group of buyers) has significant market power over sellers, which in this context are workers). This power can lead to suppressed wages, limited job opportunities, restricted mobility, and poorer working conditions, as workers have fewer alternative employers to turn to. For a long time, the impact of competition on workers was largely absent from mainstream academic discourse and often met with skepticism. The current enforcement trend unequivocally shows that authorities now recognise the profound and often detrimental impact of anti-competitive behaviour on the livelihoods of individuals. In a drive towards a more inclusive approach to enforcement, and competition policy that is concerned not just with environmental sustainability, but social sustainability as well, this change is to be enthusiastically welcomed.

What Constitutes Harm to Workers?

In the context of competition law, harm to workers can manifest in several ways:

• Suppressed Wages and Compensation: Employers with monopsony power can pay lower wages than they would in a competitive market, as workers have fewer options to command higher pay.

• Restricted Mobility: Anti-poaching agreements, non-compete clauses, or other informal understandings can limit workers' ability to move to better-paying or more desirable jobs, trapping them in less favourable conditions.

• Reduced Benefits and Worse Working Conditions: Without competitive pressure to attract and retain talent, employers may offer fewer benefits, provide inadequate training, or maintain less desirable working conditions.

• Lack of Innovation in Labour Practices: A lack of competition can stifle innovation in how companies manage and compensate their workforce, leading to stagnant practices that do not benefit employees.

  
  

Professional Sports and Talent Sectors: A High-Risk Arena

With any new enforcement focus, there inevitably exists a lag in the knowledge and preparedness of market operators. Given that labour market concerns are now a priority for competition authorities, professional sports and talent sectors may be especially exposed to scrutiny.

Why are these industries particularly vulnerable?

• Reliance on Restrictive Practices: These sectors often rely heavily on contractual restrictions (e.g., long-term contracts, transfer fees, non-compete clauses often extending beyond what's reasonable), informal understandings, and centralised control mechanisms such as salary caps and closed leagues. While some of these might be justified by the unique nature of sports (e.g., maintaining competitive balance), their potential to restrict worker mobility, suppress wages, and limit career progression is now firmly on regulators' radar.

• Unique Market Structures Requiring Cooperation: Professional sports, in particular, operate in market structures that necessitate a higher degree of cooperation than more traditional sectors. Leagues, for instance, require collective agreements for scheduling, rule-making, and revenue sharing. However, the line between legitimate cooperation and anti-competitive collusion can be thin, especially when it impacts player freedom, compensation, and access to opportunities.

• Cross-Border Dynamics: The global nature of professional sports and talent management means that these industries often involve cross-border dynamics. This can bring them within the scope of not only national enforcement bodies but also powerful regional authorities like the European Commission, as evidenced by the recent cases. The complexity of international transfers and contracts further adds layers of potential anti-competitive behaviour.

  
  

Beyond specific labour practices, the very structural design of sports leagues is also under close scrutiny. The recent tennis antitrust complaints and the European Superleague case highlight the risk of dual regulatory and commercialisation functions of sports bodies, such as Premiership Rugby.

The Overlooked Elephant in the Room: Common Ownership

Interestingly, the recent Delivery Hero/Glovo case was not solely a labour market case; the issue of common ownership was of central importance. Delivery Hero held a non-controlling minority shareholding in Glovo from 2018 to 2022, which was the timeframe of the anticompetitive agreements: (i) not to poach each other's employees, (ii) to divide national markets amongst themselves, and (iii) exchange commercially sensitive information. This scenario offers a potentially critical lesson for PE firms expanding their portfolios in professional sports.

Common ownership refers to situations where a single investor or group of investors holds non-controlling stakes in multiple competing companies within the same industry. This trend, particularly through PE firms and institutional investors, has become a prominent feature across various sectors, including professional rugby union in recent years. CVC Capital Partners, for instance, has acquired significant minority holdings in a number of major competitions, including:

• Premiership Rugby: A 27% stake.

• United Rugby Championship (formerly Pro14): A 28% stake.

• The Six Nations: A 14% stake.

  
  

This trend could raise significant "red flags" from a competition law perspective. When an investor holds stakes in multiple competing entities within the same ecosystem, there's an inherent risk of reduced competition, even without explicit agreements. This can manifest in several ways:

• Softening of Competition: Entities with common ownership may be less inclined to compete aggressively on prices, innovation, for talent or, critically, for broadcasting rights. The incentive to "win" at all costs is diluted if a financial interest exists in the competitor's success. This can lead to higher prices for consumers, lower compensation for players, and a less efficient and innovative league.

• Information Exchange: Even without formal agreements, common ownership can facilitate the flow of commercially sensitive information between ostensibly competing entities.

• Impact on Labour Markets: In the context of sports, common ownership could lead to coordinated strategies on player salaries, transfer policies, or even access to training and development opportunities across different leagues or teams. This can significantly reduce the bargaining power of athletes, leading to further suppression of earnings and fewer opportunities.

  
  

Proactive Measures: A Necessity, Not a Luxury

Given these developments, Premiership Rugby, and indeed all sports organisations and businesses with similar ownership structures or relying on restrictive labour practices, should be urgently conducting a thorough evaluation of their regulatory risk exposures. The confluence of increased labour market scrutiny and the implications of common ownership creates a potent environment for potential antitrust challenges.

Proactive measures are no longer just best practices but essential for mitigating significant financial and reputational risks:

• Review Existing Contractual Clauses: Businesses should meticulously review non-compete clauses, non-solicitation agreements, and other restrictive covenants in employment contracts to ensure they are narrowly tailored and legally justifiable, avoiding overly broad terms that could be seen as anti-competitive.

• Assess Independence of Regulatory Bodies: Sports leagues and other self-regulating bodies must ensure a clear separation between their commercial interests and their regulatory functions to prevent conflicts of interest that could harm competition or worker welfare.

• Evaluate Compensation and Mobility Practices: Companies should critically assess their internal policies regarding compensation, hiring, and employee mobility to ensure they are not inadvertently contributing to monopsony power or restricting worker choice.

• Enhance Internal Compliance Programs: Robust competition law compliance programs, with a specific focus on labour market dynamics and the risks associated with common ownership, are crucial. This includes regular training for management and HR personnel.

• Consider Independent Governance Reviews: For complex structures like sports leagues with common ownership, independent governance reviews can help identify and address potential antitrust vulnerabilities before they attract regulatory attention.

The shift in competition law enforcement towards labour markets is a clear signal that authorities are increasingly concerned with how market power impacts individuals. Coupled with the growing scrutiny of common ownership, businesses, particularly those in high-risk sectors like professional sports, must adapt swiftly. Those that proactively review their practices and prioritize fair competition in labour markets will be better positioned to navigate this evolving regulatory landscape and contribute to a more equitable and socially sustainable economy.