Newcastle, MBS & 50+1 – How does antitrust come into play?

With Newcastle United having been acquired by Saudi Arabia’s sovereign wealth fund and many commentators highlighting that something similar could not happen in Germany, we will check whether and how antitrust comes into play when it comes to the acquisition of football clubs.

For many years, English football fans have been used to “grief and worry” about their home clubs. For the broader public, it all started back in 2003 when Russian oligarch Roman Abramovich took over Chelsea Football Club in West London, turning it into a world-renowned brand and, one has to admit, quite a successful football club (lately with German help!). Since then, American, Chinese, Thai and Emirati investors followed his example and found Premier League’s clubs to be valuable additions to their respective vehicle and yacht fleets business portfolios, some argue also helping them to improve their general reputation (by some also referred to as “sportwashing”). Despite such extensive history of pugnacious investors, the latest development still adds a new twist: The Saudi Arabian consortium Public Investment Fund finalised its takeover of Premier League football club Newcastle United  just this week. The consortium is chaired by Mohammad bin Salam, Crown Prince of Saudi Arabia.

The first takeover attempt was blocked by the Premier League one year ago (for copyright infringement reasons), which led to a legal dispute in which Newcastle’s former owner, Mike Ashley, argued that the Premier League abused its dominant position by blocking the acquisition. Unsurprisingly, the claim has meanwhile (i.e., this week) been dropped. Antitrust was even more of a key issue when Rupert Murdoch tried to acquire Manchester United in 1999. After an extensive investigation by the Monopolies and Mergers Commission, the Secretary of State for Trade and Industry (at the time Stephen Byers) stopped the deal arguing that it would increase the market power which Murdoch’s Sky TV platform already had as a provider of sports premium channels. Since then, antitrust and foreign investment considerations have apparently not majorly affected or even restricted foreign investments in UK clubs, though.

The Special One

While foreign investments are no UK-only phenomenon, in the context of the Newcastle takeover many commentators praised that something similar could not happen in Germany. Under Germany’s very peculiar own 50+1 rule, club members must keep a controlling stake in their club, thereby preventing external investors to take over a controlling or majority stake. More precisely, investments are possible, but the majority of voting rights (50+1!) has to stay with club members. Now, to be fair, the same enthusiasm for the 50+1 rule is yet to be found when Germany’s clubs are eliminated early from the Champions League and all eyes are again on UEFA’s difficult to enforce Financial Fair Play regime. Yet, in times like these, the protective nature of the 50+1 regime seems to nicely fit into the overall political landscape trying to balance the possibility of funding and the limitation of external investors.

Sounds easy, right? Besides the basic rule, there is, of course, an exception to the DFL’s (the association of the 36 clubs of the Bundesliga and Bundesliga 2) bylaws: If an investor has substantially supported the club’s football activities for more than 20 years, the DFL can grant an exemption to the 50+1 rule (i.e., the investor can take control of the club). Currently, three clubs benefit from said exemption, namely Bayer Leverkusen, Vfl Wolfsburg and TSG Hoffenheim.

However, the future of 50+1 and in particular of the exemption seems to be uncertain. In its preliminary assessment earlier this year, the German Bundeskartellamt said that the 50+1 rule “undoubtedly constitutes a restriction of competition”. At the same time, the authority emphasized that the rule in its general form is appropriate for achieving sport policy objectives, which can in turn be recognized under competition law. The Bundeskartellamt, however, raised doubts as to whether the exemption is clearly defined and does not directly “countervene” the sport policy objectives. The three clubs currently benefitting from the exemption joined forces towards the Bundeskartellamt, claiming that the exemption was a matter of maintaining the existence of the rule and preserving the grandfathering of their clubs. The Bundeskartellamt is still collecting feedback for its assessment from the DFL and other market participants and has just prolonged the deadline for comments until end of October.

At the end, the Germans always win?

The outcome of the German case is dreaded awaited eagerly. The preliminary assessment of the Bundeskartellamt was, interestingly enough, not the result of a pro-active investigation, but originally initiated by the DFL requesting a decision that there are no grounds for action by the Bundeskartellamt. Also considering the latest developments in the UK and the corresponding international reactions, it might be unlikely – this is crystal ball gazing now – that 50+1 will disappear. Amendments to or the annulment of the exemption rule may have to be expected, though. It will also be interesting to see how the Bundeskartellamt will deal with clubs arguing that 50+1 is a competitive disadvantage at the international level and how this can be considered under the Bundeskartellamt’s broad umbrella of sport policy objectives. Certain hopes that investments in Premier League clubs have come to an end might not be justified. Rumour has it that the Glazers, American billionaires and owners of Manchester United, are considering an exit.