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The Asser International Sports Law Centre is part of the T.M.C. Asser Instituut

A Good Governance Approach to Stadium Subsidies in North America - By Ryan Gauthier

Editor's Note: Ryan Gauthier is Assistant Professor at Thompson Rivers University in Canada. Ryan’s research addresses the governance of sports organisations, with a particular focus on international sports organisations. His PhD research examined the accountability of the International Olympic Committee for human rights violations caused by the organisation of the Olympic Games.


Publicly Financing a Stadium – Back in the Saddle(dome)

Calgary, Canada, held their municipal elections on October 16, 2017, re-electing Naheed Nenshi for a third term as mayor. What makes this local election an interesting issue for sports, and sports law, is the domination of the early days of the campaign by one issue – public funding for a new arena for the Calgary Flames. The Flames are Calgary’s National Hockey League (NHL) team, and they play in the Scotiabank Saddledome.


Scotiabank Saddledome, credit to Lorraine Hjalte, Calgary Herald

The team began play in 1972 as the Atlanta Flames, moving to Calgary in 1980. The Saddledome was built in 1983 to support both the newly-arrived Flames, and Calgary’s 1988 Winter Olympic Games. Today, the Saddledome is the oldest arena in operation in the NHL. Due to its age, and the damage caused by floods in 2013, the Flames are looking for a new home. As is the norm in North America, the Flames have no intention of going it alone, but are seeking a deal with the City of Calgary where the city would subsidize part of the arena. Negotiations have been ongoing for several years, with a few possible sites discussed.

Shortly into the 2017 municipal election campaign, negotiations between Calgary and the Flames broke down. The City of Calgary publicly released their proposal for a $555 million stadium, where the city would effectively subsidize 33% of the stadium through a mix of funding, land, and demolition of the old Saddledome. The team would pay 33% of the costs, and the fans would kick in the final 33% through a ticket tax. The Flames responded by releasing their proposal for a $500 million stadium, where the city would provide 45% of the funding through a ‘Community Revitalization Levy’ (a loan from the province of Alberta, paid off by property taxes on new developments around the arena), with the team providing 55% of the remainder. The difference in costs may be that the Flames’ proposal does not appear to consider the demolition of the old Saddledome. While the team’s proposal has the team paying more costs up-front, it would also see the Flames pay no property tax or rent during their tenure in the new stadium, while keeping all revenue generated by the arena.

Canadian national media praised Mayor Nenshi for not simply capitulating to the demands of the Flames. Print media exhorted taxpayers to “Just say ‘No’” to subsidizing the Flames, and called Nenshi’s re-election “a win for every city blackmailed by a sports team”. The Calgary Flames, and the NHL were less sanguine, as NHL Commissioner Gary Bettman blamed Nenshi for not getting a new arena for the Flames, and Flames’ management suggesting that the team would have to move. The night of Nenshi’s re-election saw the communications director of the Flames, Sean Kelso, take a more direct stance:


The ongoing dispute in Calgary is emblematic of a larger problem in North America – the public financing of stadiums for professional sports teams.

Public Financing of Stadiums in North America – A General Overview

North American cities have subsidized stadiums for professional sports teams for decades. However, cities rarely simply transfer cash to a team. Instead, more complex mechanisms are used: issuing bonds, tax increases, lotteries, and the use of “eminent domain”.

First, cities may provide money for stadiums through providing bonds to team owners. These bonds are tax-exempt, and are normally used by cities for public improvements. Cities have been able to justify their use for stadiums, and the tax-exempt nature of the bonds lowers the lifetime borrowing costs for a team. Second, cities may simply increase taxes. Cities used to increase property taxes to raise money for stadiums, but local residents began to resent such increases. Today, cities often increase “sin taxes” (e.g., on alcohol, or gambling), or taxes on hotels, in an attempt to move the burden of increased taxation to out-of-town people who won’t be voting in the next municipal election. Third, cities may set up lotteries, in conjunction with the state or province, to raise money for the stadium. Finally, cities may exercise their use of “eminent domain”. This tactic enables cities to condemn the land, with payment of just compensation (which is often not market value) to the original owner, for the furtherance of a “public purpose” (what constitutes a public purpose is broad, following the US Supreme Court decision in Kelo v. City of New London, 545 U.S. 469 (2005)).

After understanding the what, the question remains: why do cities subsidize sports stadiums? Ultimately, there is a limited supply of major-league teams, and cities view being a “major league” city as a benefit. Unlike European professional leagues, where any local team could make it to the top league through promotion, the top leagues in North America are closed leagues, currently limited to 30-32 teams in the “big four” leagues. Cities that want to be home to a professional team must convince a league to expand, placing a new team in their city (as Las Vegas recently did with the NHL), or convince an owner of an already-existing team to relocate (as Las Vegas has done with the National Football League’s Oakland Raiders). One way to encourage expansion or relation is to offer a subsidized stadium. It can be argued that these tactics are no different than a city offering a subsidy to convince a company to establish or relocate an office – like what is happening with Amazon right now – except for the scale of the subsidy.

Boosters of stadium subsidies have argued that cities should be happy to have sports teams, as the teams will generate an economic boost. They claim that the team, and their new stadium, will increase local income, employment rates, property values, and the well-being of citizens. However, economists have generally debunked these claims. While there are examples of successful stadiums, they are generally not as successful as predicted, often not worth the costs, and the few successes are drowned out by every other instance where the economic impact was not realized (sort of like hosting the Olympic Games or FIFA World Cup).

Proposed Legal Solutions to Halt Public Financing of Stadiums

Given the lack of economic benefits generated by stadiums, particularly given the hundreds of millions of dollars of subsidies granted to each stadium, legal scholars have proposed legislative, regulatory, and judicial solutions to halting this gravy train.

In regards to legislative solutions, Canada and the United States could follow the model of the European Union (EU). The EU has restrictions on government assistance to private industries, to prevent the distortion of competition across the EU – these are known as the “State Aid” rules, found in Art. 107 of the Treaty on the Functioning of the European Union. In practice, the EU has an uneven history of applying the State Aid rules to sport. However, it has shown more enthusiasm over the past year to find evidence of state aid that is incompatible with the Treaty, including in a case that involved a questionable deal involving land next to Real Madrid’s Bernabéu Stadium. However, legislative solutions are unlikely to be enacted by either the American Congress or the Canadian Parliament (or local legislative bodies). There appears to be no interest to do so, and why would there be? Politicians can benefit from new stadiums by working with business elites who support the stadiums, and the evidence of repercussions at the ballot box appear to be mixed.

Some legal scholars have suggested regulatory or judicial solutions, such as: halting the tax-free status of municipal bonds, ending the use of eminent domain to obtain land for stadiums, and advocated a stronger role for antitrust oversight over the conduct of teams and leagues in this regard. However, courts have construed these particular laws broadly enough to allow the public financing of stadiums to continue.

A Good Governance Approach to the Public Financing of Stadiums – Atlanta Braves Case Study

When even Calgary’s stance, which had the city subsidizing at least 1/3 of the stadium, is considered brave, it seems reasonable to presume that publicly-subsidized stadiums will continue apace in North America. As such, it may be more helpful to consider what happens after a stadium project is proposed. Applying a good governance approach to stadium financing could be a helpful way forward. If stadiums are going to be built, regardless, then it is best to make those who build stadiums – governments and teams – accountable to the taxpayers and fans.

Good governance principles have been increasingly applied to the organization of sport – particularly the governance of international sporting organisations. While good governance can be defined in a myriad of ways, it is often broken down to particular principles. In examining stadium projects, I suggest that four principles should be considered: transparency, public participation, solidarity, and review. These principles closely track those used by the Sports Governance Observer.

One recent stadium project seems to have studiously avoided all of these principles entirely – in a way that demonstrates the need for these principles to be applied in the first place. This project took place in the Calgary Flames’ old home of Atlanta, USA.


                                                                                          Turner Field, credit to Zpb52

In 2013, the Atlanta Braves announced that they were leaving their current stadium in downtown Atlanta. They weren’t moving to a new city, but were moving 32 kilometres north to the suburb of Cobb County. The reason for the move? A brand new, publicly-financed stadium. The Atlanta Braves had played at Turner Field since 1997. Not even twenty years later, the stadium, originally built as the centrepiece of the 1996 Summer Olympic Games, was deemed to be obsolete by the Braves. Enter Cobb County. To pay for a new stadium for the Braves, Cobb County issued $368 million in municipal bonds (originally estimated at $276 million). The Braves, in chasing public money, bucked the trend of teams moving closer to the city centre, as suburbs are not conducive to stadiums.

While the rationale and the dollar figure should raise some eyebrows, the process used to secure funding for the stadium should be deeply disturbing to fans of democratic processes. The deal itself was negotiated in secret between a single Cobb County commissioner, and the Atlanta Braves. The president of the Atlanta Braves, John Schuerholz, stated that if news of the deal “had leaked out, this deal would not have gotten done…If it had gotten out, more people would have started taking the position of, ‘We don’t want that to happen. We want to see how viable this was going to be.’” Eventually, the deal needed to be voted on by Cobb County commissioners. At the public vote held in May 2014, only twelve speaking slots were available to the public. Stadium supporters had lined up by 2pm for the 7pm meeting, and the Commissioners denied any additional speaking slots. The same Commissioners voted 5-0 to fund the stadium. Opponents of the stadium filed a suit in the Georgia courts, alleging that the bonds used to finance the new stadium violated the Georgia state constitution, and various state laws. However, the opponents were defeated in the courthouse, too, as the Georgia Supreme Court upheld the validity of the bonds as they provided at least some plausible public benefit. The stadium opened in 2017 to positive reviews from fans and ballpark enthusiasts.

In examining the Atlanta Braves new ballpark by applying principles of good governance, the results are discouraging. Transparency was almost non-existent throughout most of the process, as the deal was completed in secret, as admitted by the president of the team. Public participation was curtailed throughout the process, and most galling, at the eve of the final vote on the funding. There have been no solidarity benefits that have come to the forefront, although it should be noted that it is possible that money that was raised to pay for public parks was diverted to funding the stadium, which cuts against the idea of solidary benefits. Finally, there will likely be no post facto review of the stadium and any attendant benefits it may claim. While there was review of the deal itself through the courts, the Georgia Supreme Court noted that “we do not discount the concerns Appellants have raised about the wisdom of the stadium project and the commitments Cobb County has made to entice the Braves to move there. But those concerns lie predominantly in the realm of public policy….”.


SunTrust Field, Credit to David Goldman/AP

The Value of Good Governance Principles in the Stadium Debate

The case of Atlanta demonstrates the importance of good governance in the public financing of stadiums. Proponents, critics, and scholars can apply these principles to evaluate and engage in more thoughtful debates over the processes of public financing of stadiums. Since stadiums are likely to receive public funding, regardless of the merits, a better process should improve the benefits to the public, while constraining the costs.

Applying principles, as opposed to enacting legislation, may lead the reader to ask “can these principles be enforced?” In terms of traditional legal enforcement, namely recourse to a regulatory body or a court, a city would probably need to implement these terms into a Memorandum of Understanding with the team. For principles such as solidarity, particulars could be written into the final funding agreement. This has been done, for example, with the Community Benefits Agreement implemented between the City of Edmonton, and the Edmonton Oilers hockey team, for a publicly-subsidized stadium that opened in 2016.

However, even if the city itself refuses to implement these principles, they do provide a framework to hold decision-makers to account. In instances where the government has done wrong by the citizens, but there are no judicial remedies, the remedy is then to vote the government out. In establishing these principles, they then provide standards by which the government can be held to account, if not formally, then at least through the ballot box.


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Asser International Sports Law Blog | The Pechstein ruling of the Oberlandesgericht München - Time for a new reform of CAS?

Asser International Sports Law Blog

Our International Sports Law Diary
The Asser International Sports Law Centre is part of the T.M.C. Asser Instituut

The Pechstein ruling of the Oberlandesgericht München - Time for a new reform of CAS?

Editor's note (13 July 2015): We (Ben Van Rompuy and I) have just published on SSRN an article on the Pechstein ruling of the OLG. It is available at http://papers.ssrn.com/sol3/papers.cfm?abstract_id=2621983. Feel free to download it and to share any feedback with us!


On 15 January 2015, the earth must have been shaking under the offices of the Court of Arbitration for Sport (CAS) in Lausanne when the Oberlandesgericht München announced its decision in the Pechstein case. If not entirely unpredictable, the decision went very far (further than the first instance) in eroding the legal foundations on which sports arbitration rests. It is improbable (though not impossible) that the highest German civil court, the Bundesgerichtshof (BGH), which will most likely be called to pronounce itself in the matter, will entirely dismiss the reasoning of the Oberlandesgericht. This blogpost is a first examination of the legal arguments used (Disclaimer: it is based only on the official press release, the full text of the ruling will be published in the coming months).

 

The Pechstein Saga

Few are able to remember the start of Claudia Pechstein’s legal crusade through all available jurisdictions in the northern hemisphere[1]. Thus, a concise summary of the previous episodes is in order. Claudia Pechstein is a German Speed-Skater, multiple Olympic Gold Medallist and World Champion. In 2009, she was one of the first athletes caught for doping on the basis of the blood profiling system introduced by the International Skating Union (ISU)[2]. Henceforth, the ISU banned her from all competitions for two years. This triggered a long and embroiled legal saga. She appealed the ban in front of the Court of Arbitration for Sport (CAS), based on an arbitration agreement included in her license with the national and international federations. The CAS dismissed (CAS 2009/A/1912 & 1913 and CAS OG 10/04) her claims and confirmed the two-year ban. Subsequently, she contested (twice!) the award in front of the Swiss Federal Tribunal (Case 4A_612/2009, 10 February 2010 and Case 4A_144/2010, 28 September 2010), but was both times unsuccessful. Her case is also pending before the European Court of Human Rights. Meanwhile, she started an action for damages (around € 4 Million) in front of the local Court of Munich (Landesgericht München). This Court released its judgment on 26 February 2014, despite recognizing the invalidity of the arbitration clause, it considered that the award’s res judicata effect was to be recognized because Pechstein did not contest the competence of CAS when she appealed the ISU’s decision to it. Pechstein decided to appeal the judgment to the Oberlandesgericht München, which in its decision from 15 January 2015 embraced her claims.

 

The Decision of the Oberlandesgericht München

The overall position of the Oberlandesgericht concerning the CAS award is straightforward. The court considers the arbitration clause between the ISU and Claudia Pechstein as contrary to German (and maybe European) antitrust law, which is part of German public policy, and, therefore, refuses on the basis of Article V (2) (b) New York Convention of 1958 to recognize the validity in Germany of the CAS awards rendered in the Pechstein case. But, why is it so?

First of all, the judges point out a typical (but often overlooked) fact about International Sports Governing bodies: they are monopolists. In other words, they control the market(s) for international sports competitions and nowadays (at least in speed-skating) no professional athlete can afford, if he is to live from his sport, to miss those competitions. Yet, German antitrust law bans an undertaking placed in a dominant position from imposing contractual conditions that differ from what they would be in a normal competitive environment. Hence, the Court held that the ISU was unlawfully imposing onto Claudia Pechstein the signing of a CAS arbitration clause. But, is a forced arbitration clause per se constitutive of an antitrust violation? The Court is subtler. In fact, it acknowledges that an arbitration clause imposed by a Sports Governing Body does not constitute per se an antitrust violation. To the contrary, the Court clearly states that there are good reasons (for example the uniform application of anti-doping regulations) to subject the resolution of sporting disputes between athletes and Sports Governing Bodies to a unique world court for sport. What is the problem then?  

In the eyes of the German court, the problem lies with CAS and its institutional set-up. First of all, the Sports Governing Bodies (International federations, NOCs and IOC) have a decisive influence on who is potentially called to be an arbitrator in CAS arbitration. Here, without clearly alluding to it in the press release, the Court has the closed list of CAS arbitrators in mind. In short, only a predefined number of people can act as arbitrators before CAS. Those arbitrators are appointed on the CAS list by ICAS, the CAS code in force at the time of the case foresaw that 3/5 of the arbitrators were appointed upon proposals made by the Sports Governing Bodies[3]. This has changed. As from the 1 January 2014 the ICAS is free to appoint whomever it deems appropriate on the list[4]. Nevertheless, the Court finds that, at least for the time Pechstein was facing the CAS, the Sports Governing Bodies were in a structurally favourable position regarding the composition of the arbitral panel. In practice, athletes were forced to ratify this disequilibrium due to the monopoly of Sports Governing Bodies on the access to international sporting competitions.

Furthermore, the German judges consider that this imbalance plagues also the nomination process of a president of an arbitral panel. Indeed, under article R54 of the CAS Code, the president of the CAS Appeals Arbitration Division is responsible to nominate the presidents of the panels[5]. However, the president of the CAS appeals division is himself nominated by the ICAS[6], which consists mainly of representatives of the Sports governing bodies[7], and is often a personality close to them[8]. Currently, the ICAS has 20 members, of which 14 have (or had) direct ties with Sports Governing bodies and none is connected to the existing athlete’s unions. This institutional bias entrenches the structural imbalance in favour of the Sports Governing Bodies already identified by the Court apropos the closed list of arbitrators. Thus, the independence of the panel cannot be guaranteed and the fairness of the arbitral process safeguarded. Therefore, in light of the monopolistic position of the ISU and the lack of independence of CAS panels, the imposition of an arbitration clause depriving the athlete of her constitutional right to a judge constitutes a breach of German antitrust law.

Consequently, and contrary to the first instance Landesgericht[9], the Oberlandesgericht refuses to recognize, on the basis of Article 5 par. 2  b) of the 1958 New York Convention, the validity of the CAS awards invoked by ISU to oppose the damage claims raised by Pechstein. The Court leaves open the question of the damage claims, the partial ruling on the jurisdiction being susceptible to an appeal to the highest German civil Court, the BGH.

 

Towards a Gundel 2.0 for CAS: Reform or die!

The Pechstein Saga is not finished yet; an appeal to the BGH by ISU is to be expected. However, one should not underestimate the symbolic value of the Oberlandesgericht’s ruling and the threat it constitutes to the work of CAS. Indeed, if the ruling were to be confirmed by the BGH it would basically imply that CAS awards are unenforceable in German courts and that athletes may therefore (successfully or not) claim damages against the Sports Governing Bodies imposing sanctions on the basis of these awards. From the press release it remains unclear whether the decision is based solely on German antitrust law or also on EU antitrust law. Nonetheless, this decision might also be constructed as an abuse of a dominant position in the sense of article 102 TFEU and could gain validity in the EU as a whole. This would be a dramatic setback for sports arbitration, nothing short than the death of CAS.

But, it need not come to such extremity. As recognized by the Oberlandesgericht, the CAS fulfils an important function in the sporting world. It is a necessary institution to provide a level legal playing field when issues of doping or transfers are leading to acrimonious transnational disputes. Additionally, it also has advantages for the athletes, as it is usually perceived as cheaper and faster than state justice[10]. All of this is duly acknowledged in the decision. In short, what the German Court is asking for is an institutional reform of CAS. This restructuring would entail a fundamental reshuffling of the internal functioning of the CAS. Indeed, the German judges have identified the two main weak points of CAS, the forced arbitration coupled with its lack of independence[11]. The forced arbitration can be accepted if, and only if, the structural independence of CAS from the Sports Governing Bodies is warranted[12]. The challenge to CAS can be formulated as follows: cut the ties that bind you to the Sports Governing Bodies or we will not accept the validity of the arbitration clause underpinning your competence.

In fact, the CAS was at a fairly similar (less dramatic) crossroad after the Gundel case of the Swiss Federal Tribunal in 1993[13]. In the Gundel case, the SFT recognized the independence of CAS but also clearly indicated that it would not do so if the IOC were a party to a dispute in front of CAS. This led to what is known as the Paris agreement, an in depth structural reform of CAS[14]. Mainly, the ICAS was created to separate the management of CAS from the IOC. The SFT expressed its satisfaction with the reforms in its famous Lazutina case and blessed the CAS with the full recognition of its independence[15]. This, however, did not mean that the recognition of the independence of CAS was legally a given beyond Switzerland. To the contrary, it was (and is) still hotly debated in the literature[16]. Now, the German court basically says the Paris agreement is not enough, we need a new one, ensuring that athletes (and other stakeholders like clubs or supporters) get a true say in the ICAS. It is time for the CAS’s institutional structure to better reflect the diversity of actors affected by its decisions. If not, CAS awards will not be recognized in Germany and, by extension, the entire territory of the EU, thus leading the sports justice into a profound crisis.

 



[1] All the relevant legal documents are available on her website at http://www.claudia-pechstein.de/gerichtsunterlagen.php

[2] On the dispute see D. McArdle, ‘Longitudinal Profiling, Sports Arbitration and The Woman Who Had Nothing to Lose. Some Thoughts on Pechstein v International Skating Union”, available at https://dspace.stir.ac.uk/bitstream/1893/3356/1/Pechstein%20final.pdf

[3] Article S14 CAS Code, edition 2004

[4] The new article S14 CAS Code reads as follows:

« In establishing the list of CAS arbitrators, ICAS shall call upon personalities with appropriate legal training, recognized competence with regard to sports law and/or international arbitration, a good knowledge of sport in general and a good command of at least one CAS working language, whose names and qualifications are brought to the attention of ICAS, including by the IOC, the IFs and the NOCs. ICAS may identify the arbitrators with a specific expertise to deal with certain types of disputes. »

[5] Article R54 CAS Code 2004 (and 2014) reads as follows: “If three arbitrators are to be appointed, the President of the Division shall appoint the President of the Panel upon appointment of the arbitrator by the Respondent and after having consulted the arbitrators.”

[6] Article S6 par.2 CAS Code 2004 (and 2014)

[7] Article S4 CAS Code 2014 foresees that:
« ICAS is composed of twenty members, experienced jurists appointed in the following manner :

1.     four members are appointed by the International Federations (IFs), viz. three by the Association of Summer Olympic IFs (ASOIF) and one by the Association of the Winter Olympic IFs (AIOWF), chosen from within or outside their membership;

2.     four members are appointed by the Association of the National Olympic Committees (ANOC), chosen from within or outside its membership;

3.     four members are appointed by the International Olympic Committee (IOC), chosen from within or outside its membership;

4.     four members are appointed by the twelve members of ICAS listed above, after appropriate consultation with a view to safeguarding the interests of the athletes;

5.     four members are appointed by the sixteen members of ICAS listed above, chosen from among personalities independent of the bodies designating the other members of the ICAS. »

[8] The current president, Corinne Schmidhauser, is a member of the Legal Committee of the Fédération Internationale de Ski (International Ski Federation). It is surely telling that Thomas Bach, the current IOC president, was her predecessor at that post.

[9] The first instance Court (Landesgericht München) considered that due to Pechstein’s appeal and lack of contestation of the CAS’s competence, the award had gained res judicata effect. See paragraphs  IV.2) of the judgment.

[10] A point made by D. Yi, ‘Turning medals into metal:  Evaluating the Court of Arbitration for Sport as an International tribunal’, available at http://digitalcommons.law.yale.edu/cgi/viewcontent.cgi?article=1024&context=student_papers

[11] Antonio Rigozzi has highlighted these weaknesses in his Phd thesis, see A. Rigozzi L’arbitrage international en matière de sport, Bruylant, 2005, pp.273-349 and 421-426. See also, M. Maisonneuve, L’arbitrage des litiges sportifs, L.G.D.J, 2011, pp. 141-221 and pp. 267-313.

[12] In principle the Swiss Federal Tribunal has a similar view outlined in the Cañas case (4P.172/2006), but it considers that the CAS already offers « sufficient guarantees of independence and impartiality » (par. 4.3.2.3.). Thus, its assessment of the CAS’s independence is diametrically opposed to the one conducted by the Oberlandesgericht.

[13] Decision 4P.217/1992 of 15 March 1993 (Gundel v FEI), ATF 119 II 271, translated in CAS Digest I,.p. 545

[14] For an introduction on the Paris agreement see, http://www.tas-cas.org/en/general-information/history-of-the-cas.html#c74

[15] Decision 4P.267–270/2002 du 27 mai 2003, Lazutina c. CIO, ATF 129 III 445, Bull. ASA 2003, p. 601

[16] For a recent contribution to this debate see A. Vaitiekunas, The Court of Arbitration for Sport : Law-making and the question of independence, Stämpfli Publishers, 2014 

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