Editor’s note: Sven Demeulemeester and Niels Verborgh
are sports lawyers at the Belgium law firm, Altius.
Introduction
In its
16 November 2018 judgment, the Court of Justice of the
European Free Trade Association States (the EFTA Court) delivered its eagerly
awaited ruling in the case involving Henrik Kristoffersen and the Norwegian Ski
Federation (NSF).
On 17 October
2016, Kristoffersen had taken the NSF to the Oslo District Court over the
latter’s refusal to let the renowned alpine skier enter into a sponsorship with
Red Bull. At stake were the commercial markings on his helmet and headgear in
races organised under the NSF’s umbrella. The NSF refused this sponsorship because
it had already granted the advertising on helmet and headgear to its own main
sponsor, Telenor. Kristoffersen claimed before the Oslo District Court, that the
NSF should be ordered to permit him to enter into an individual marketing
contract with Red Bull. In the alternative, Kristoffersen claimed damages up to
a maximum of NOK 15 million. By a letter of 25
September 2017, the Oslo District Court referred several legal questions to the
EFTA Court in view of shedding light on the compatibility of the rules that the
NSF had invoked with EEA law.
If rules do not relate to the conduct of the
sport itself, but concern sponsorship rights and hence an economic activity,
these rules are subject to EEA law. The EFTA Court ruling is important in that
it sets out the framework for dealing with - ever more frequent - cases in
which an individual athlete’s endorsement deals conflict with the interest of
the national or international sports governing bodies (SGBs) that he or she
represents in international competitions.
The Kristoffersen ruling: the EFTA Court targets athlete endorsement deals
A. Facts and procedures
Henrik Kristoffersen, silver medalist at the
2018 Pyeongchang Olympic Games and a bronze medalist at the 2014 Sochi Olympic
Games, is a member of the Norwegian national alpine skiing team. Kristoffersen
is not an employee of the Norwegian Ski Federation (NSF), but he did sign a
standard athlete’s contract with the NSF to be able to participate in the
national team.[1]
The Norwegian Ski Federation (NSF) - a
non-profit organisation - is a sports organisation, which organises, among
other things, activities in the discipline of alpine skiing. The NSF is a
member of both the International Ski Federation (FIS) and of the Norwegian
Olympic and Paralympic Committee and Confederation of Sports (NIF). Therefore, the
NSF is subject to the FIS’ and the NIF’s regulations. Only the FIS and its
national federations, such as the NSF, organise alpine skiing races of
financial value to alpine skiers in classic disciplines, such as the slalom and
downhill skiing. The NSF is financed by public funds and marketing contracts.
The revenues gained from marketing activities accounted for 71% of the NSF’s
total income in 2015.[2]
Individual sponsorship agreements are subject
to the NSF’s approval,[3] although
the NSF’s standard athlete contract foresees an exception[4] in which
the athlete may enter into individual sponsorship agreements with equipment
providers in the NSF’s “skipool”. The NSF skipool is a pool scheme that is open
to selected equipment suppliers without requiring the NSF’s approval. To become
a member of the NSF skipool, suppliers must be approved as an equipment
supplier by the FIS/NSF. In addition, they also must pay an annual fee to the NSF.
Athletes are prohibited from entering into agreements with any supplier that is
not a member of the NSF skipool.
The NSF covers all expenses (e.g. board and
lodging, transport, equipment, medical support, insurance, etc.) of the members
of the Norwegian national alpine skiing team for approximately 200 days a year,
but the athletes do not receive any of the funds that the NSF collects from the
main and co-sponsors as the athletes’ own income.[5]
This specific case concerns a dispute between
Kristoffersen and the NSF relating to an individual sponsorship contract that
Kristoffersen had with Red Bull[6] for
helmet and headgear worn in races under the auspices of the NSF and the International
Ski Federation (FIS). Kristoffersen and Red Bull had been seeking to enter into
such an agreement since 2014, but the NSF had refused permission for
Kristoffersen to sign the contract at the end of April 2018.[7] The NSF
had already decided to include space upon its helmet and headgear in the
contract with its main sponsor, Telenor.
B. Questions to the EFTA Court and its answers
The questions
In this dispute, the Oslo District Court referred
six questions to the EFTA Court, the supranational judicial body
responsible for interpreting the Agreement on the European Economic Area (EEA) for
the EFTA States that are parties to the EEA
Agreement (Iceland, Liechtenstein and Norway).[8]
The questions essentially covered two issues.
The first issue was whether rules, such as
those in the NSF Joint Regulations, on prior control and consent for individual
sponsorship contracts regarding commercial marking on the national team’s
equipment, or the application of those rules, constitute a restriction under Article
36 EEA Agreement or the Services Directive.[9]
The second issue was whether such a restriction
on an athlete’s right to enter into sponsorship agreements could be justified.
Prior control and consent for individual sponsorship contracts can
constitute a restriction
Applicability of Article 36
EEA Agreement
The EEA Agreement’s
free movement rules may also apply to the rules laid down by sports
associations.[10] With
reference to the Court of Justice of the European Union’s long-standing case
law,[11] the EFTA Court has concluded that sport is
subject to EEA law to the extent it constitutes an economic activity. Athletes’
sponsorship contracts entail marketing services, which constitute, as such, an
economic activity.[12] The
EFTA Court has also concluded that the cross-border element is present since
the proposed sponsorship contract involved a Norwegian athlete and an Austrian company;
and the professional competitions in which Kristoffersen participated took
place in several EEA States.[13]
Next, the court has determined
whether the present case concerns the freedom of establishment or the freedom
to provide services. The court has stated that “the rules in question concern, at least predominantly, the freedom to
provide services, as opposed to the freedom of establishment” since the NSF’s
rules may grant or refuse permission to athletes to enter into individual
marketing contracts, which will have an impact on Kristoffersen’s opportunities
to provide marketing services. By contrast, the rules will not or only
remotely, affect an athlete’s freedom to establish themselves as professional
skiers, which is the activity from which their marketing activity derives.[14]
The prohibition of
restrictions on the freedom of providing services
Article 36 EEA
Agreement prohibits restrictions on the freedom of providing services within
the EEA. Measures liable to hinder or make less attractive the exercise of a
fundamental freedom guaranteed by the EEA Agreements are an encroachment upon
this freedom.
A system of prior
control and consent for individual sponsorship contracts appears to make the
exercise of Kristoffersen’s marketing activity less attractive. Under the EFTA
Court’s settled case law, prior authorisation schemes amount to a restriction
on the freedom to provide services.[15]
However, this is ultimately for the referring court to determine.[16]
Justifications to restrictions
A restriction on the
freedom to provide services (Article 36 EEA Agreement) may be justified on the
grounds set out in Article 33 EEA Agreement[17] or by
overriding reasons in the public interest, provided that it is appropriate to
secure the attainment of the objective that it pursues and does not go beyond
what is necessary to attain it.[18]
Legitimacy of the aims pursued by
the measures at issue
Aims of a purely economic nature, such as the desire to increase
profits, cannot justify a restriction on the freedom to provide services. The
aim of the measure in this case appears, however, to be related to ensuring a
stable basis for the NSF’s activities. The court has found it relevant that the
NSF is a non-profit sports association, that the marketing revenues are by far its
most important source of income (71% of the NSF’s total income in 2015) and
that the overall revenue is not only used for professional sports, but also for
recruitment, education and children’s and reactional sports.
The EFTA Court has indicated – with reference
to the CJEU’s Bernard judgment[19] - that the objective of encouraging
the recruitment and training of young athletes is legitimate. But, it is not
sufficient for the restrictive measure to resort to a legitimate aim in general:
it must be assessed whether the measure at issue actually pursues the invoked
aim. The referring court must therefore identify, in the light of the facts of
the case, the objectives that are in fact pursued by the contested measure.[20]
Suitability/Consistency
The party imposing the restriction must
demonstrate that the measure is suitable to achieve the legitimate objective
pursued along with genuinely reflecting a concern to attain that aim in a
consistent and systematic manner.[21] The
EFTA Court states that it is reasonable that some of the revenues are only
dedicated to professional athletes, but that the income generated must also
benefit the legitimate aims (such as recruitment, education, children’s and
recreational sports).[22]
In this case, the EFTA Court has concluded that
the rules on prior control and consent for individual sponsorship contracts,
such as those laid down in the NSF Joint Regulations, are suitable to achieve
that objective since a substantial part of the income is spent on the objective
of encouraging the recruitment and training of young athletes.[23]
Necessity
The referring court must also assess whether
the measure goes beyond what is necessary to attain that objective. The
necessity test implies that the chosen measure must not be capable of being
replaced by an alternative measure that is equally useful but less restrictive
to the fundamental freedoms of EEA law.[24] In this
case, it must be assessed whether there are other less restrictive measures
that would ensure a similar level of resources.[25]
The Court believes that the assessment of the
system’s necessity must take account of the fact that the NSF and the athletes
are mutually dependent on one another.[26] The
system must ensure that the athletes receive a fair share of the revenues from
sponsorship contracts. If not, that would constitute a disproportionate
restriction on the athletes’ freedom to provide sponsorship services. The Court
has argued that in this case it appears that revenue generated from marketing
contracts constitutes the most important source of income for both the NSF and
the athletes.[27] In
addition to that, the Court has also taken into account that the NSF covers all
the expenses of members of the Norwegian national alpine skiing team for
approximately 200 days a year. Furthermore, the athletes may enter into
individual sponsorship contracts with equipment providers in the NSF skipool
without the NSF’s approval. Outside the NSF skipool, additional contracts may
be entered into with the NSF’s approval.[28]
Kristoffersen concluded several of those
contracts, which may have an impact on the assessment of the referring court about
whether the athletes receive - through the system in place - a fair share of
the revenue from the potential market for sponsorship contracts.[29]
C. Guidelines for concrete decisions and procedural aspects
A system of prior control and consent for
individual sponsorship contracts may constitute a justified restriction on
athletes’ freedom to provide sponsorship services, so long as it pursues a
legitimate aim, is suitable and does not go beyond what is necessary to attain
the aim.[30]
While a system of prior control and consent for
individual sponsorship contracts may be justified as such, it does not
necessarily follow that every individual decision taken under that system is
equally justified. Such individual decisions must pursue the legitimate aims of
the system in a suitable and proportionate manner and there must be a fair
balance between the interests of the NSF and the professional athletes.[31]
The
existence, at the time of the athlete’s application for approval, of a
collective sponsorship contract with the NSF’s main sponsor, Telenor, covering
helmet and headgear, may be relevant to the assessment of whether the concrete
refusal is justified. The assessment of proportionality may also include the
issue of whether the NSF was aware of Kristoffersen’s intention to enter into a
separate sponsorship agreement when NSF concluded its collective sponsorship
contract, as well as the impact of such a collective sponsorship agreement on
Kristoffersen’s ability to generate income from his profession. Furthermore,
the referring court may also take account of the impact of individual
sponsorship contracts on the NSF’s ability to achieve the legitimate aims
invoked.
Besides
that, the system and the decisions under a national sports federation’s
approval scheme for individual marketing contracts may not be arbitrary and must
satisfy certain procedural requirements (such as: the proper communication of an
individual decision within a reasonable time; and a review of the decision
before an independent body should be available).[32]
Striking
the right balance between collective interests and individual ones can be
difficult as the EFTA Court’s decision illustrates. Even though the EFTA Court
sets out some key principles for evaluating advertising and sponsorship restrictions, it
leaves the ultimate call for balancing those interests to the Oslo District
Court.
Conclusion
The EFTA Court has drawn a clear ‘line in the
sand’ for SGBs.
The
Court’s ruling considers that a system of prior control and consent for
athlete’s individual sponsorships, and potential refusal of such sponsorship,
constitutes a restriction of the freedom to provide services, to the extent
that the system makes less attractive the exercise of an athlete’s freedom to
provide a marketing service. Such a restriction will be acceptable only if it pursues a legitimate
aim, is suitable and does not go beyond what is necessary to attain the aim.
Aims of a purely economic nature, such as the
desire to increase profits, cannot justify such a restriction. The objective of
encouraging the recruitment and training of young athletes can however be a
legitimate aim, to the extent that a substantial part of the income is indeed spent
on encouraging the recruitment and training of young athletes. Also, a fair
balance between the federation’s interests and the particular athlete’s interests
is required. The EFTA Court considers that SGBs and athletes are often mutually
dependent on one another. Athletes must receive a fair share of the revenues
from sponsorship contracts. A decision to refuse an endorsement must be well-reasoned
and communicated to the athlete within a reasonable timeframe. In addition, a
review procedure before a body independent of the federation should be
available.
In times where SGBs’ advertising and sponsorship
restrictions are already under scrutiny from a competition law perspective,[33] the EFTA Court has added internal
market arguments to the mix. Both the fundamental freedoms and the competition
law arguments are likely to bolster individual athletes seeking to increase
revenue from their sporting activities. The
decision clearly indicates that SGBs should be careful when dealing with sponsorship deals.
At the same time, the ruling shows SGBs how to
adopt sponsorship regulations that are the least likely to infringe EEA law. To justify restrictions, the SGBs will need to come up with a
transparent, intelligent system in which restrictions are justified in view of (proven)
redistribution of income to support the training of athletes and the funding of
amateur sports. The presence of independent review procedures will be key. In
that respect, the EFTA Court ruling may serve as ‘ammunition’ for those looking
to increase transparency and good governance in the seat of SGBs.
[8] Article 34 of the
“Agreement between the EFTA States on the Establishment of a Surveillance
Authority and a Court of Justice” foresees in the possibility for courts or
tribunals in an EFTA State (Norway, Iceland and Liechtenstein) to request the
EFTA Court to give an advisory opinion on the interpretation of the EEA
Agreement.
[33] Cf. https://www.bundeskartellamt.de/SharedDocs/Meldung/EN/Pressemitteilungen/2017/21_12_2017_DOSB_IOC.html.