Research seminar by professor Ilias BANTEKAS

Law & Tax

Ilias BANTEKAS (Hamad bin Khalifa University)

Building S room S119

Access online: https://hec-fr.zoom.us/j/95412113417

RECONCILING THE NON-PROFIT STATUS OF SPORT GOVERNING BODIES WITH THEIR INVESTMENT AND COMMERCIAL PROWESS AND THEIR AUTHORITY TO RE-WRITE HUMAN RIGHTS RULES

Abstract

International sports governing bodies (SGBs) such as the International Olympic Committee (IOC), FIFA and UEA are incorporated as either limited liability companies (the non-prevalent model) or non-profit entities in a single jurisdiction, with the latter being the more prevalent model. Switzerland is beyond doubt the most attractive jurisdiction for the non-profit model thus far. There is a third model, which suggests that in order to attract the business of SGBs, some states are willing to offer extraordinary concessions and privileges. One such example is the Badminton World Federation (BWF), which until its incorporation in Malaysia was a non-profit charitable institution in Britain. Malaysia conferred all the privileges and immunities of international organizations to the BWF, and it was a no-brainer which jurisdiction it would choose to resettle in. 

SGBs are unique in that they enjoy so-called regulatory autonomy, and their internal rules and regulations produce what is known as lex-sportiva, that is respected as law and forms the paradigmatic form of so-called transnational law. The World Anti-Doping Agency WADA is a perfect example of this model of regulation. WADA is composed of SGBs, athlete representatives and governments and this is further reflected in its decision-making capacity. This multi-stakeholder approach in addressing acute issues of international law is not unique. It is a common feature of transnational trust funds handling assets from multilateral donors with the aim that they be dispersed in a plethora of projects around the globe. In all such cases there is a designated trustee, albeit the donors and in some cases non-governmental entities sit in the plenary organ of the trust funds. The Global Environmental Fund (GEF), the Sustainable Development Goals (SDGs) and the Global Fund to Fight AIDS, TB and Malaria are paradigmatic of this approach. In turn, multi-stakeholder entities produce two types of instruments, namely: a) contracts with their donors and beneficiaries; b) general instruments, such as codes, statements, terms of reference and others. These general instruments perform two functions, namely: a) non-binding standard setting, and; b) as terms and conditions incorporated by reference into their contracts with donors and beneficiaries. The contractual (and binding) nature of the latter is a distinctive feature of multi-stakeholder entities. By way of illustration, if states were to replicate an anti-doping convention at inter-governmental level in the absence of an institution such as WADA they would have to overcome the thorny issues of universal participation, which is sine qua non for sporting events that are meant to be global. Equally, they would have to overcome the lengthy, tedious and highly unforeseen outcome of multilateral treaty making. And even if a global treaty were to be somehow agreed, the need to update such treaty and be proactive would require a multilateral mechanism requiring some degree of unanimity. One can see the difficulties of the intergovernmental approach and the stalemate of conferences of states parties (CSPs), as is the case with the Paris Climate Agreement, among others.

Non-profit SBGs engage in at least four types of commercial activity, namely: a) conferring on states by means of contract the right to host tournaments or events under their aegis, which in turn generates revenues; b) broadcasting, image, and sponsorship rights; c) portfolio investment (i.e. purchase of shares, stocks, debentures and other intangible assets) with surplus revenue; and d) developmental and outreach activities with a view to grow their fan and athlete base and thus generate profits from the above commercial activities. Even though SGBs can secure agreements with host states that contain personalized investment guarantees (in most cases far superior to treaty-based guarantees), neither they nor participating states (e.g. tournament hosts) view SGB investors under applicable bilateral investment treaties (BITs) or host state investment laws. This is puzzling, because with very few exceptions, BITs and Model BITs either expressly recognize non-profit entities as investors or otherwise do not expressly exclude them from their ambit so long as they engage in some commercial activity. The four aforementioned types of commercial activity clearly constitute investments.  SGBs refrain from being characterized as investors out of fear of losing their non-profit status, which in turn shields them from taxes and confers significant privileges. 

SGBs have managed, to some degree, to carve out a special contract law with athletes under their aegis. The Court of Justice of the EU (CJEU) chastised these relationships in a recent string of judgments not so much from a contractual perspective, but from the lens of EU competition law and freedom of movement of workers. The very simple observation was that no entity, even SGBs that enjoy regulatory freedom, can restrict persons from seeking to compete in other events or competitions and no entity can restrict members from forming alternative competitions. This simple anti-trust rule, while wholly apparent, was anathema to the sport world. There is an even deeper problem with the contracts of individual athletes. There is a clear intention by SGBs to avoid characterizing, let alone emphasizing that their relationship with individual athletes amounts to a contractual relationship. The term ‘contract’ signifies that athletes are bound by terms they cannot fully understand and which in fact cannot be explained to them satisfactorily by their clubs and national sport federations (NSFs). To be sure, the vertical contractual relationship requires a particular degree of legal expertise that is mastered by a few individuals in NSFs but is well known and understood at CAS and SGB level. While it is undoubted that the law of contracts develops at the state (regulatory) level in accordance with constitutional demands and international standards, it is also evident that peculiar strands of contractual exchanges are also emerging in discreet transnational channels. While these discreet strands are self-defined as stateless, or at best as state-sanctioned lex mercatoria, the fact remains that sports contracts between athletes and SGBs defy to a very large degree the standard principles under which contracts are understood and construed. No doubt, this was the intention of SGBs and their quest for regulatory autonomy from states. Notwithstanding the merits of regulatory autonomy, the law of contracts is itself a field of regulation which despite the existence of few mandatory rules, is deeply entrenched within constitutional constraints. Moreover, there is no suggestion that the broader regulatory autonomy of SGBs was meant to provide authority for the imposition of terms and conditions that could not otherwise be sustained in national legal orders. 

Finally, among many human rights issues that are prevalent in the intersection of law and sport regulation concerns the authority of SGBs, through their internal rules and regulations, to restrict protest in the course of sporting events. While there is some logic to this, chiefly in order to keep politics away from sports and hence avoid incitement to hatred or violence, one cannot escape the conclusion as to why speech that does not incite violence or hatred should be restricted by a non-profit entity, especially at the expense of losing one’s livelihood (e.g. through a sanction such as a lifetime ban). SGBs celebrate and impose strict political neutrality in their institutional rules. Such neutrality is inconsistent with the individual rights of athletes to freedom of expression and peaceful assembly. The contractual basis of such restriction is irrelevant because fundamental rights are constitutionally entrenched and cannot be limited by contract or law, save if the expression incites to violence, hatred, discrimination or is otherwise inconsistent with criminal law. There is no empirical evidence suggesting that restricting the political expression of influential athletes leads to generalized political or other violence. Instead, it is clear that international sports federations and particularly their executive organs, directly because of their quasi-corporate structure, are weary of upsetting the disparate political sentiments of their constituent national federations, for which human rights are a form of friction.