Background of the Update
Competition cases relating to sports associations/federations usually arise due to conflict between their regulatory functions and economic activities undertaken by them. Rules governing the players and the organisation of sport events/tournaments often create a restrictive environment for the economic activities that are incidental to sport. These restrictions could be justified if it is demonstrated that the restraint on competition is a necessary requirement to serve the development of sport or preserve its integrity. However, if restrictions impede competition without having any plausible justification, the same would fall foul of competition law.
In the case of Hemant Sharma and Ors. vs. All India Chess Federation which was recently dealt with by the Competition Commission of India (CCI) in July 2018, the CCI had to deal with a complaint made by a chess player (followed by the DG investigation report) wherein it was unearthed that, – All India Chess Federation was requiring the chess players in India to give a declaration that the player will not participate in any tournament/championship that is not authorised by AICF. It was further found out that, – if a chess players participated in any tournament not authorised by AICF, he/she will be banned for a period of one (1) year from participating in the National Chess Championships and other events. Further, such player would have to surrender fifty (50) percent of the prize money to AICF, and would have his / her ELO rating points removed.
The CCI held that, -AICF indulged in practices that result in denial of market access to organisers of chess events/tournaments and were hence anti competitive. The CCI came to the conclusion that while on one hand, AICF, in its capacity as a organiser commercially exploited a game, on the other hand, it was also vested with the authority to regulate the game, by way of imposing rules and regulations including sanctioning of third party chess events. Therefore, there was an inherent conflict of interest due to dual capacity of Regulator and organiser.
This research update elucidates on the aforesaid case and the ruling of the CCI.
Facts of the Case in brief
The Informants are chess players registered with All India Chess Federation (AICF) which is a society registered under the Tamil Nadu Societies Registration Act, 1975 as the National Sports Federation for the sport of chess.
The Informants contended that the AICF engaged in restrictive / anti competitive trade practice due to the following reasons:
- At the time of registration with AICF, the chess players had to give a declaration which states that the player will not participate in any tournament/championship that is not authorised by AICF.
- Such registration was necessary if the players want to be selected for National or International events. If any player participated in any tournament not authorised by AICF, he/she will be banned for a period of one (1) year from participating in the National Chess Championships and other events. Further, such player would have to surrender fifty (50) percent of the prize money to AICF, if any, from such unauthorised events and tender an unconditional apology along with an undertaking that he/she will not participate in any unauthorised tournament in future.
- ELO rating points of the Informants were removed by AICF without giving any prior notice due to their participation in the chess tournament sponsored by the Chess Association of India (“CAI”), which was not authorised by AICF. In addition to Informants, AICF also removed ratings of 151 chess players on the ground.
Relevant Legal Provisions
Section 3(3)(b) of Competition Act, 2002 – Prohibition of agreements: Anti-competitive agreements
Any agreement entered into between enterprises or associations of enterprises or persons or associations of persons or between any person and enterprise or practice carried on, or decision taken by, any association of enterprises or association of persons, including cartels, engaged in identical or similar trade of goods or provision of services, which limits or controls production, supply, markets, technical development, investment or provision of services.
Section 3(4)(c)and(d) of Competition Act, 2002
Any agreement amongst enterprises or persons at different stages or levels of the production chain in different markets, in respect of production, supply, distribution, storage, sale or price of, or trade in goods or provision of services, including exclusive distribution agreement and refusal to deal shall be an agreement in contravention of law if such agreement causes or is likely to cause an appreciable adverse effect on competition in India.
Ruling of CCI – AICF enjoyed a dominant position in the relevant market and abused its dominant position
The CCI held that the restrictions imposed by AICF regarding non-participation of its players in events not authorised by it, amounted to restraints that were in nature of exclusive distribution and refusal to deal as defined in Section 3(4)(c) and 3(4)(d) of Competition Act, 2002. AICF indulged in practices that resulted in denial of market access to organisers of chess events/tournaments which were likely to have appreciable adverse effect on competition.
The relevant market was ‘market for organization of professional chess tournaments/events’ and ‘market for services of chess players’. AICF was de-facto regulator and an exclusive body responsible for conduct and governance of all chess events in India. In view of regulatory powers enjoyed by AICF under pyramid structure of sports governance and predominant buyer of services provided by professional chess players, AICF enjoyed dominant position in both relevant markets i.e. market for organization of professional chess tournaments/ events in India and market for services of chess players.
The rules of AICF conferred upon it control over professional chess players in India, who had no bargaining power. As per the rules, the players desirous of participating in FIDE/Asian/Commonwealth Championships are mandatorily required to participate in National Championships organised by AICF. Further, players registered with AICF alone can participate in State, National and International Championships recognised by FIDE and AICF. By controlling the participation of professional chess players in chess events organised by other entities, AICF enjoys control over organisation of chess events. Sports federation like AICF engaged/involved in organisation of sports events and economic exploitation of such events are put to advantage if they are vested with the authority to approve/sanction organisation of similar events by other. Undoubtedly, such advantage is a significant source of market power. AICF’s regulatory role empowered it to create entry barriers for other chess events other than those recognised by it, in form of requiring recognition.
Also, non-compliance of the undertaking would result in banning of player and removal of their ELO rating. These consequences created entry barriers, foreclose competition and restricted opportunities available to chess players.
Consequences of participating in any unauthorised events were very stringent and unilateral without offering an opportunity of being heard. They had the effect of restricting movement of professional players and did not leave any scope for players to participate in any tournament not authorised by AICF.
It is understandable that AICF would have to put in place certain restrictions or some regulatory mechanism that are indispensable to preserve the interest of the game. Such stipulations however have to be proportionate and inherent to preserving the integrity of the sport. Due regard needs to be given to the specificity of the sport while stipulating any conditions.
It is important that restrictions imposed by sports federations serve the interest of the sport and at the same time maintain a fine balance between the extent of regulation and its implication on the competition in the economic activities incidental to the sport. Some of the relevant factors to be considered in this regard are nature of sport, limited professional life and level of opportunities for professional players. Restrictions deprived Informants from playing chess over several years causing irreparable loss given that in sports, players had short professional career. This has no coherence with preserving the integrity of sport and promoting game.
Our Comments in brief
The ruling of the CCI will have a significant impact for sports players in India and act as a deterrent for various sports federations to indulge in restrictive trade practices. In 2005 also, the CCI had penalised BCCI (the sole regulator in the cricketing arena) and had directed it to cease and desist from any practice of denying market access to potential competitors through inclusion of one-sided clauses in any agreement in the future.