The Ban on Majority Ownership: German Soccer's 50 + 1 Rule under National and International Law |
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MPI for Private Law, Forum on International Sports Law 30.11.2009 |
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The comment in the Zeit newspaper that football “moves millions” (Zeit Online 26.1.2007), was alluding not to the millions of enthralled spectators, but rather the many millions of euros that flow through the highest echelons of the sport. It is an accepted fact that this professional sport has become an important branch of the economy, with many teams being run as businesses. What is not clear however is where the boundaries lie in the governing law - the extent to which the laws of the market or the laws of sport should apply where the two perspectives collide. This question formed the background of a discussion regarding majority ownership of football clubs, a topic which has resurfaced recently in Germany. At the centre of the debate is Germany’s “50 +1” rule, which prohibits majority ownership by investors rather than the club themselves in the professional sector.“The 50 + 1 rule” Football clubs are permitted to spin-off their professional teams to form stock companies, creating money from the sale of shares. Most Bundesliga teams have spun these companies off from the club itself in the form of GmbH, AG or most often, KGaA. However, majority ownership by third parties is prohibited according to §8 (2) of the German Football League (Deutsche Fußball Liga – DFL) statute which governs the clubs of the first and second Bundesliga. This “50+1 rule” states that the club itself must retain majority voting rights, at least 50% plus one of the voting shares. A reduced amount is only possible where the club or a 100% owned subsidiary holds the partner company and where the club retains a control similar to majority ownership through some other mechanism. Comparable rules are also found in the German Football Association (Deutsche Fußball-Verband - DFB), including §16c (2) DFB Statute. The management committee of the DFB has excluded some clubs in Germany from the “50+1 rule”. These exceptions only apply where the football club was founded by a company, which has held ownership for over 20 years. Additional requirements include an ongoing support of amateur football and a prohibition on the further sale of shares. This exception has only been used twice, for the first time in 1999 for Bayer Leverkusen, providing the name ‘Lex Leverkusen’, and in 2001 for VfL Wolfsburg. Similar restrictions do not apply in other large football nations in Europe such as England, Spain, Italy or France. In Germany, there has been increasing call to dispense with the “50 + 1 rule”. Spearheading this movement, the management of the club Hannover 96 addressed a petition to the DFL to abolish the rule. This petition was rejected on the 10.11.2009, with a clear vote to retain the majority ownership prohibition. “The 50 + 1 Rule in National and European Law Perspective” Following an introduction by Reinhard Zimmermann, Professor Dirk Verse, from the Osnabrück University Faculty of Law, addressed the legal background of the “50+1 rule”, focussing on European law. The validity of §8 (2) of the DFL Statute is provided by European anti-trust law (Articles 101, 102, AEUV) and the European Civil Liberties (Articles 49, 63 AEUV). From an anti-trust perspective, the DFL, which operates as a trade association is restricted by the “50+1 rule”, not least by the limitations it imposes on the development of a market for majority investors in German football companies. However, according to the Meca-Medina decision handed down by the European Court of Justice (ECJ) in 2006, the rule can be justified providing it is being used for a legitimate purpose and is otherwise reasonable. The same assessment standard applies to the civil liberties that are affected by the “50+1 rule”. In this case, the freedoms most affected are the free movement of capital, similar to that permitted by the VW law and secondly, the freedom of establishment, which should guarantee a subsidiary a controlling share. Although the DFL and DFB are private institutions, they are still subject to basic European civil liberties, according to the ECJ rulings regarding the European Football Association (UEFA) in Bosnan’s Case, as these institutions serve as “quasi lawmakers” establishing collective norms which individuals must follow. The “50+1 rule” has two primary goals which can be seen as legitimate. The first of these should guarantee equality under the licensing process. The gap between “rich” and “poor” clubs should not increase. Secondly, the majority ownership rule should prevent an increase in influence from non-sporting entities. This strong protection of sporting interests as against commercial interests is clearly recognised as a legitimate aim. This first applied after the introduction of Article 165 AEUV, which placed particular emphasis on the significance of sport. Dirk Verse pointed to the considerations expressed in relevant literature to demonstrate the appropriateness of the “50 + 1 rule”. This revealed that the rule was somewhat counterproductive in its aim of protecting licensing equality, as it maintains already existing imbalances. It leads to a solidification of the “three class society” (those who participate in international competitions, those from the middle of the table, and those clubs on the borderline between the first and second leagues). However, these measures can be seen as appropriate if the assessment prerogative is considered. The rule is equally suitable in light of its intent to protect sporting interests, although influence may be exerted in other ways, as seen in the investment of SAP founder Hopp in Hoffenheim 1899. The actual extent of influence is not taken into account, as is the case with companies under corporate law. The objections expressed regarding the necessity for the “50+1 rule” are also important, as they provide a range of alternative measures which may prove much less restrictive than the current limitations on football clubs. The most obvious consideration is salary caps, which are widely used in American professional sports. This model does not limit the voting rights of investors, rather their ability to interfere in the club itself. These measures do not however provide an attractive alternative. Additionally, decisions regarding the scope of investment at the team level could be extended to the whole club. This could certainly lead to a ‘domino effect’ as seen in the English league, whereby the majority of clubs are forced to place themselves in the hands of investors. There is one other necessity related measure which forms the crux of the current discussion, forming the basis of the Hannover 96 proposal. This proposes that it would be sufficient if investors agree to be constrained by a Statement of Requirements (SOR). This could contain seven categories: long term engagement of investors (at least 10 years), mandatory brand management and retention of traditional values and requirement to protect football’s basic principles and values, a prohibition on multi-team ownership, and a ‘fit and proper person’ test for financial and personal integrity, securing the clubs ability to influence future development by providing club held places on the supervisory board and by requiring League approval for the transfer of shares. This list can be extended into further categories, including the creation of a fan-based advisory board or limiting price increases. However, an SOR does not have or seek to have the same effect as the “50+1 rule” as evidenced by the simple inclusion of a ‘fit and proper person test’. Additionally, an SOR would result in reduced feedback and input by the club into its own decision making process, which cannot be counterbalanced through seats on the supervisory board. Ultimately, the rule is appropriate, as the limitations it imposes are not disproportionate to the goals it pursues - and investment is not completely prohibited. In concluding, Dirk Verse found that the prohibition on majority ownership in football clubs was not disproportionate, and therefore permissible. Exceptions such as the ‘Lex Leverkusen’ however are not justifiable with regard to the facts, and steps should be undertaken to redress this imbalance through an attenuation or abrogation of the regulation while retaining Bayer and VW’s legal status. Commentary and Discussion The next presenter, Tobias Kollmann (Professor of Economics, University Duisberg-Essen) emphasised that football clubs are run today like businesses, and that professional football has long been subject to the rules of the financial market. He pointed to Hoffenheim’s success as autumn champions in the previous season, Wolfsburg having won the previous German season’s title and Leverkusen’s position at the top of the table at that time as strong arguments in favour of investor involvement. The involvement of Red Bull in Leipzig, in the fifth German league, was particularly noteworthy, if not revolutionary. He argued a compromise solution was needed to prevent an impending court assessment of the “50+1 rule”, and proceeded to present his proposal, developed that year under the title “Agenda 50+1” for discussion. Following this presentation, one of the parties affected by the “50+1 rule” took the stand. Martin Kind (President of the Club Hannover 96) described the 10.11.2009 decision of the League as a wasted opportunity. The limitations on investment were already damaging national competiveness and, in reality, these limitations did little to ensure the co-determination of the team. He joined Tobias Kollmann in the call for a compromise model, proposing a reduction to existing regulations – without which, he argued, clubs such as Hannover 96 would not be able to compete and develop over the long term. Hans-Joachim Watzke (Director of Borussia Dortmund GmbH & Co. KGaA) spoke against this approach, stating that the abrogation of the “50+1 rule” would not necessarily lead to an equal playing field among teams. The differences in international competitiveness were due to income from television rights – an advantage that Germany does not have unlike the English or Spanish leagues. Removal of the “50+1 rule” would also not lead to an improved situation within the country, as financial resources differ from investor to investor. Ultimately, the “50+1 rule” represented the interests of the fans, who identify more easily with their club when there are no foreign investors involved. Also in favour of retaining the “50+1 rule” was Christian Müller (Member of the Managing Board of the League Association and the Managing Board of the DFB, Chief Financial and Licensing Officer of the DFL). The abolition of the “50+1 rule” would compound the ‘arms race’ between the clubs. Investors are currently not without rights, despite being restricted to minority holdings. Additionally, the “50+1” did not prevent an unrestricted flow of funds. Christian Müller reported on the UEFA initiative “Financial Fair Play”, run by Michel Platini, which seeks to prevent teams from becoming over indebted and to create a financial equality. This program should first show results in March 2010 and may provide incentives for football clubs nationally. Jan Räker (Counsel for Hamburg SV) also sought to retain the advantages of the “50+1 rule”, arguing it permitted clubs to operate commercially on a more solid basis. The case of Hoffenheim showed that sporting success can also take place within the existing framework. Within the legal examination of the “50+1 rule”, the specific elements of sports must be considered, rendering the normal anti-trust provisions from the corporate world not immediately transferable to the football clubs. Finally, he noted that the compromises proposed thus far were not acceptable for the league in general. The day concluded with a discussion between the presenters and symposium participants. Presenters were able to expand upon their points and answer further questions posed by those in attendance. At the end of the day, it may be possible to obtain a legal judgment on the appropriateness of the “50+1 rule”, through appeal to the DFB Permanent Board of Arbitration, activation of the German Federal Anti-Trust Office or a complaint lodged in accordance with the EU anti-trust regulations with the European Commission. It remains to be seen however if Martin Kind, as a vehement opponent of the rule will take this path – a course he left open in his responses to the targeted questions of the press. |
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Date of publication: 15.02.2010 |
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| Organizer: Forum on International Sports Law |
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Pictures
Martin Kind (President of Hannover 96), Prof. Dr. Ulrich Becker (MPI for Foreign and Intl. Social Law) and Prof. Dr. Tobias Kollmann (Universität Duisburg-Essen) |
Jan Räker (Counsel for Hamburg SV) |
Christian Müller (Member of the Managing Board of the League Association and the Managing Board of the DFB, Chief Financial and Licensing Officer of the DFL) |
Hans-Joachim Watzke (Director of Borussia Dortmund) |