Player contracts: antitrust regulators sharpen tools against no-poach and wage-fixing agreements

Competition authorities around the world are increasingly scrutinising no-poach and wage-fixing agreements. This trend could change the ‘rules of the game’ for sports, an industry where ‘hiring’ represents the core of its business and not ‘just’ an HR task ancillary to the commercial activity. 

Following the trend leads us back to a landmark case in Mexico. The Mexican competition regulator (Comisión Federal de Competencia Económica, COFECE) set the stage in 2021 when it sanctioned the Mexican Football Federation (MFF) and 17 domestic football clubs for engaging in no-poaching and wage-fixing agreements. This case arguably laid the foundations for recent and ongoing investigations, and regulatory changes taking place globally. 

COFECE’s ruling

Mexican law does not contain an ad hoc prohibition for no poaching, wage-fixing, or employee non-competes. Instead, the law includes a catalogue of forbidden conduct in order to prevent so-called cartel activity, leaving a narrow level of discretion to competition regulators when enforcing the law.

In its 2021 football ruling, COFECE set a high bar and made clear that no-poaching and wage-fixing agreements are considered illegal in Mexico. COFECE fined 17 domestic clubs, the MFF and 8 individuals for colluding in the market for men’s and women’s football players (with fines totalling 177.6 million Mexican pesos, approximately USD 9.5 million). Specifically, the antitrust agency based the sanctions on two types of conduct:

• No-poaching. For more than 10 years, football clubs agreed to apply a ‘right of retention’. Under this agreement, each club affiliated to the MFF would register its players, and when a contract with the player expired, the club had a right to keep the player. If a different club was interested in employing that player, it necessarily had to obtain authorisation from the first club, and often pay a compensation for the exchange. The regulator identified this conduct as a collusive agreement that had the object and ultimately the effect of segmenting the market of players. This collusion was found to hinder competition among football clubs in the hiring of players, which limited the transfer of players and negatively affected their wages.

• Wage-fixing. Football clubs agreed to establish a wage cap for women’s players according to their age. This cap was approved by the MFF, which encouraged clubs to comply with the wage cap and conducted inquiries to verify compliance. COFECE considered that this behaviour constituted a collusive agreement within the category of price fixing. Additionally, the agreement actively prevented clubs from competing with each other by offering better wages, which not only had a negative impact on women players’ income, but also had the consequence of widening the gender salary gap.

The global trend towards enforcement

In the US, the pace of enforcement in labour markets is gaining steam. According to Lina M. Khan, chair of the US Federal Trade Commission (FTC), “the freedom to change jobs is core to economic liberty and to a competitive, thriving economy”. This general rule must be carefully applied to sports. As opposed to “traditional markets”, the core of a sports team’s business does not include trading goods or services. Rather, teams “trade” players. Players are themselves the core “product” being traded. Consequently, in sports, contractual rules regulating the transfer of athletes as personnel are not ancillary or limited only to HR aspects, but rather shape the cornerstone of the business.

The transfer of players has been – and will continue to be – subject to antitrust scrutiny. The trend to regulate the free transfer of employees in traditional markets may also have additional implications on the sports market. In Canada, the Competition Bureau recently opened a consultation on guidelines covering incoming criminal prohibitions against no-poach agreements and wage-fixing. Its US counterpart, the FTC, has gone even further by proposing a rule that would simply ban most employee noncompete clauses.

Meanwhile, in Europe, competition regulators are also taking an interest. In July 2022 the UK’s Competition and Markets Authority (CMA) opened an investigation into alleged ‘wage-fixing’ by sports broadcasters, through collusion to fix rates offered to freelance workers. In addition, following the UK government’s recent consultation on non-compete restrictions in employee contracts, in February 2023 the CMA published guidance warning employers about anticompetitive labour agreements, specifically citing no-poaching and wage-fixing agreements. 

National competition authorities in the EU have also launched investigations into no-poach cases and issued fines. There has been a particular focus on the sports sector, with fines levied by the Portuguese competition authority on 31 of the country’s football clubs for implementing no-poach agreements during the Covid-19 pandemic, and by the Polish competition authority on the national basketball league and 16 of its clubs. 

Comment

In view of the serious nature of the potential sanctions – in particular, criminal liability in some countries – sports teams, clubs and associations will need to be aware of the potential antitrust consequences of their daily business activities and ensure compliance. We expect that regulators across the world will be keeping a close eye on the transfer of players, wage-fixing and employment agreements, and will seek to enforce the law accordingly. 

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