German Federal Cartel Office queries “50 + 1” rule

50 + 1” rule in German soccer

In Germany sport clubs, particularly soccer clubs, are traditionally organized as registered societies (eingetragener Verein, “e.V.”), the legal form of choice for non-profit organizations owned and run by its members. The “50 + 1” rule stipulates that if the professional soccer division is outsourced into a capital company, the non-profit parent club has to retain the majority of voting rights. It was adopted by the DFL in 1999 to provide soccer clubs with new funding options, while at the same time limiting the influence of investors and retaining thereby the clubs’ social legacy.

FCO expresses concerns

The FCO refused to issue the requested ‘carte blanche’ (in a preliminary proceeding), holding that the “50 + 1” rule, as it currently stands, constitutes a restriction of competition within the meaning of Section 1 of the German Act Against Restraints of Competition (“ARC”) and Art. 101 TFEU. Although the FCO presumes that the “50 + 1” rule as such is likely compatible with German and European competition law, given the sports policy objectives it pursues, the FCO questions the consistency of its application in this case, criticizing the exceptions that are being made for long-term industry investors supporting clubs like Leverkusen, Wolfsburg and Hoffenheim. The press release can be found here.

Restriction of competition

The adoption of the “50 + 1” rule is both an agreement between undertakings and a decision by associations of undertakings within the meaning of Section 1 ARC, Art. 101 TFEU. By restricting participation in league matches to entities controlled by not-for-profit clubs the “50 + 1” rule restricts competition. It is a restriction of otherwise possible investments.

Ethical/social objectives recognizable under competition law

However, particularly with respect to requirements of sport associations it is recognized that not every restriction on freedom of action is a violation of Art. 101 TFEU.

The European Court of Justice (“ECJ”) held with regard to sports that Art. 101 TFEU has to be applied in a way that takes into account the overall context of an agreement or a decision and, more specifically, whether the restrictive effects on competition are inherent in the pursuit of – as such –  legitimate objectives and proportionate (ECJ, Judgment of 18 July 2006, C-519/04 P, Meca-Medina-decision). This decision has been understood as a 3-step-test exception to Art. 101 TFEU for sports. According to this test, restrictions on freedom of action do not constitute a violation of Art. 101 TFEU if they are necessary and proportionate to achieve a legitimate objective.

Transposed to the present case this means that sport clubs participating in a league may rightfully enter into agreements or take decisions that, if viewed in isolation, may be restrictive of competition if and to the extent that those agreements/decisions serve the purpose of furthering certain elements of competition in sports, but also if they serve ethical/social objectives.

With the “50 + 1” rule the DFL pursues, according to the FCO, legitimate objectives such as ensuring fair competition between the DFL member clubs. Also, maintaining the not-for-profit club character offers the public at large the possibility to co-determine a club’s affairs by becoming a member and hence to participate in the Bundesliga (the highest German national football league) activity beyond their role as consumers.

The FCO therefore held that that, in principle, ensuring the fans` possibility to co-determine a club’s affairs and helping to strike a fair balance in sports competition in the Bundesliga are objectives that pass “Meca-Medina” test.

Uniform application and enforcement currently not ensured

However, as the FCO further held the “50 + 1” rule did not pass this test because it was applied by DFL in an inappropriate and disproportionate way. 

To this end, the FCO mainly criticizes that exceptions to the “50 + 1” rule have been granted to investors that had substantially supported the parent club’s football activities for a continuous period of more than 20 years. The FCO argued that if exceptions were granted, the controlling influence of the not-for-profit parent club was materially affected and hence the sports activity in its entirety detached from the club model. As a result, the (legitimate) goal of the “50 + 1” rule, to ensure fair competition in club football and an evenly balanced league, was no longer reached, so the FCO argues.

It is now upon the DFL to comment on the preliminary assessment. It remains to seen how the league will position itself, given not least the potentially conflicting interests amongst its members.