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Is there a Place in the Octagon for Antitrust Laws?

December 18, 2015

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By Leah Seneviratne – Thompson Rivers University JD Student

If consumers are receiving the best product, is an alleged monopoly still harmful? American antitrust laws are in place to prohibit agreements that restrain trade and result in a monopoly. The intended result is the promotion of a competitive marketplace and protection of consumer welfare. However, monopolies in professional sports are rarely portrayed as harming consumer welfare. Rather, they have come to be expected of the most popular American sports leagues, evidenced in the domination enjoyed by the NBA, MLB and NFL. As a result, we are left with the question of whether antitrust laws should still have a place in professional sports businesses, if they still manage to produce the best possible product for consumers.

In a recent court decision, the Ultimate Fighting Championship’s parent company, Zuffa LLC, failed in their application to dismiss a class action lawsuit filed by various current and former fighters for allegedly anticompetitive business practices. The plaintiffs have brought their action under section 2 of The Sherman Act, and claim that Zuffa’s scheme has resulted in fighters being paid a fraction of what they would earn in a competitive Mixed Martial Arts market. As Dana White, the president of Zuffa, once stated, “There is no competition. We’re the NFL. There is no other guy”.

The alleged scheme of Zuffa was to directly acquire potential rival companies who were unable to compete profitably, as well as to impair competition by locking their professional MMA Fighters into lifetime exclusive contracts that bar them from working with up and coming MMA promotion companies. The scheme also included refusing to contract with any sponsor who agreed to work with an actual or potential MMA promotion rival, and requiring major physical venues to supply their services exclusively to the UFC. This greatly impedes the ability of potential UFC rivals to attract enough viewers and money to be profitable and avoid acquisition. The plaintiffs also allege that professional MMA fighters are deprived of an opportunity to make a comparable salary to those of boxers, or even NFL players, who at least have the benefit of multiple teams competing to acquire them.

What is noteworthy is that despite being part of one of the fastest growing professional sports, the latest Forbes’ list of the, “Top 100 Highest- Paid Athletes in the World” revealed a complete lack of professional MMA fighters, while boxers and soccer players dominated the list. Forbes Magazine reports the annual revenue of the UFC to be from $350-450 million, while they estimate the median fight payout for a fighter to be between $17,000 and $23,000.

So to answer the question, should the same antitrust laws be applied when it comes to the area of professional sports, where Zuffa is allegedly taking actions that result in a monopoly? In the end, the answer lies in the nature of the business practices. Section 2 of the Sherman Act is violated where there is monopolization, an attempt to monopolize, or combination or conspiracy with another person to monopolize a part of trade or commerce. It is behaviour that amounts to an exclusion of an actual or potential rival that is prohibited by The Sherman Act. If the allegations of the plaintiffs are correct, then we have a market in which a company with massive power and resources willfully obstructs competition. This type of exclusionary behaviour has allegedly resulted in a substantially increased difficulty of survival for competitors, as well as reduced bargaining power for professional fighters in contract negotiations. If the legislation clearly values competition and preventing the restriction of business transactions, then antitrust laws need to be taken seriously in the area of professional sports, in order to prevent the anticompetitive tactics that undermine them. The allegations facing Zuffa emphasize the necessity of antitrust laws in professional sports, which include preventing harm to both the competitor and the player.

 

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What the global ban on Third Party Ownership (TPO) means for football?

December 8, 2015

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By Joe Nelson – Staffordshire University, BA Sports Journalism Student

Following FIFA’s worldwide ban of Third Party Ownership (TPO) on professional footballer’s contracts earlier this year, it is hoped that football clubs across the globe will now be urged to invest more time into their players, nurturing their well-being and talents to procure better deals for all parties involved.

The new law, introduced in May 2015 by FIFA, put forward by FIFPRO (The Professional Football Players Union) received huge backing, including the likes of Michel Platini, who had likened TPO to ‘slavery’.   Although currently suspended from footballing activity, at the time, Platini explained in a UEFA statement how young players are vulnerable and could be exploited using TPO: “UEFA and FIFPRO therefore call on the European Commission to investigate the practice of third-party ownership and to fully endorse FIFA’s decision to prohibit such arrangements.”

A study in 2014 by KPMG showed that 90% of player’s economic rights in South America were partly owned by third party investors. TPO gained mass coverage when it was announced that Santos, a Brazilian football club would only receive €17.1 Million from the superstar, Neymar’s transfer to Barcelona, where €40 went to N&N, a company owned by Neymar’s parents.

It was also found by audit firm, KPMG, that investors and ‘third parties’ owned stakes in the contracts of up to 1100 professional footballers in Europe. For example, world class talent such as Radamel Falcao has been in the spotlight over the dealings, as two of his previous clubs (Atletico Madrid and Porto) have been found guilty of selling a percentage of their player’s contracts to raise funds. Porto, the Portuguese giants had previously been linked with other TPO dealings, and another recent study showed that as much as 36% of professional football players in Portugal were co-owned by third-party. Most recently publicised was Sporting Lisbon’s William Carvalho, whose transfer to Arsenal was said to have broken down due to the ownership problems.

The first breach in the new law was made by second division Belgian club, Seraing United, who failed in their appeal to FIFA’s ban in court in July 2015. The club have been banned from signing players for two years and fined 150,000 Swiss francs after agreeing to third-party ownership deals. FIFA welcomed this legal win as they stated it was “Indispensable for preserving clubs.” FIFA’s executive committee agreed to the ban in May following the campaign by UEFA and FIFPRO.

FIFA have agreed, due to the vast quantity of players involved in third-party ownership that they cannot prosecute each club, as there will be a natural ‘transitional period’, which may cause unrest within numerous leagues due to the nature of the proposal. Where one team may be severely punished, another club from the same league may not be investigated as deeply, which could cause unrest and numerous cases being appealed. For instance, if FIFA had simply cut all ties, expressing that all third party owners must be bought out immediately, it would have made for a far more straightforward command and consequence: You buy out the third parties, or pay a severe fine and be given a transfer embargo.

FIFA have announced that any deals made before 2015 will be allowed to expire under the current circumstances, and any made between January 1st and April 30th will be subject to a maximum one year time limit.

However, any new TPO deals agreed will be punished immediately, which is explained in more depth here. This ‘transitional period’ means that numerous transfers will still require buying out a ‘third party’ in the coming months due to the clauses still within the contracts. For example, recent Premier League acquisitions such as Eliaquim Mangala, Lazar Markovic and Marcus Rojo all involved an external source receiving funds for the transfers, along with the players’ previous clubs.

Inquisitions into TPO in English football is not a new concept. The Kia Joorabchian case brought a lot of light to the situation nearly ten years ago. In that instance, the  problem arose after Joorabchian was said to have represented four separate companies who owned shares in the Argentinian stars, Carlos Tevez and Javier Mascherano during their moves to West Ham United from Corinthians in 2006 (although Joorabchian has publicly declined to discuss the details of Tevez’s ownership and his buying, loaning and selling of the player, citing confidentiality agreements). The Premier League did however fine West Ham a record £5.5 million, and took steps to outlaw TPO in England in 2008.

Joorabchain later claimed that multiple other Premier League clubs use TPO and conceal their involvement in it. He also defended the use of TPO, expressing that it was: “a way of bringing outstanding players to clubs that would not be able to afford them ordinarily.” The Iranian believed it was a ‘South American model’ being used all over Europe.

These third party agreements are understandable, especially with the poorer clubs in the poorer leagues across the world, who need the revenue badly. However, the change means that football clubs should now become more invested in their sides, and not see their players simply as commodities and potential profits.

This process also means that, when the likes of Barcelona or Madrid come swooping in for the next showstopper from South America, they need not fret about complications in the contact and can focus solely on the player’s footballing ability and what he has to offer, along with paying his club 100% of the transfer price. Santos, in this scenario, would receive the full transfer sum for one of their prized assets, thereby giving them more money to invest in their club.

The ban on TPO now makes the game a fairer playing field for all involved, and will produce happier playing professionals across the world. There are still several cases to be sorted across South America and Europe, and we are bound to see numerous cases involving loopholes in the law crop up in the coming months, but it’s another big step towards making football clubs realise they’re still running a team, not a business.

 

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Contemporary Issues in Sports Law and Practice 2011

November 15, 2011

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Friday November 4, 2011

Over the weekend, I finally managed to collate my various thoughts and notes into some semblance of order.

Firstly, our thanks must go to De Montfort University (DMU) and the British Association for Sport and the Law (BASL) for hosting what was once again a very enjoyable afternoon of speakers exploring a variety of key sports law topics. The half-day conference heard from six speakers, the first plenary session focusing primarily on football and Europe, the second plenary session focusing more on the investigatory and disciplinary processes behind the scenes:

Nick Craig (Director of Legal Affairs, the Football League) gave a presentation on ‘Financial Fair Play and the Football League’.  While the UEFA Club Licensing Regulations have been in place from the 2004/05 season (the current Licensing Manual is now in its 2nd edition), UEFA have also launched Financial Fair Play Regulations (FFPR) to be applied from the summer of 2011 with the view that all clubs in European competition break-even by 2018. The topic is hot news at the moment in both the mainstream press and more specialist legal coverage.

There were number of particularly interesting points about the contrast between the FFPR being applied in the Premier League as a condition of entry into European competitions, and the Football League (FL) model where the licensing regulations are intended more as a regulatory mechanism to control the clubs and force them to become more sustainable. Legally this agreement with the FL clubs represents a “soft” law approach where the clubs “agree  to actively work to introduce measures”, “increase transparency” and encourage clubs to operate”….  Time will tell how effective the league will be with this increased regulatory authority.

The big stick comes in Article 12(2) of the FFPR which states that:

2 The membership and the contractual relationship (if any) must have lasted – at the start of the licence season – for at least three consecutive years. Any alteration to the club’s legal form or company structure (including, for example, changing its headquarters, name or club colours, or transferring stakeholdings between different clubs) during this period in order to facilitate its qualification on sporting merit and/or its receipt of a licence to the detriment of the integrity of a competition is deemed as an interruption of membership or contractual relationship (if any) within the meaning of this provision.

This clause effectively holds that any club going insolvent restarts this three year process from scratch when it transfers its assets to a new owner, preventing clubs from ditching their debts and picking up where they left off free of all those troublesome creditors.

The devil as always is in the detail though, and while the cornerstone of the FFPR programme is in achieving break-even status, there are loopholes or ‘Acceptable Deviations’. In particular, the ability to lose €5m over the three years covered by the FFPR period (rising to a €45m loss if this is covered by equity contributions) neatly sidesteps the break-even provision, while Annex I A(d) of the FFPR lists an exception for:

d) Non-applicability of the three-year rule defined in Article 12(2) in case of change of legal form or company structure of the licence applicant on a caseby-case basis;   

or put another way, all clubs are equal, but some clubs are more equal than others, particularly if they might be a marquee name with large attendances and gate receipts!

 See also: http://www.financialfairplay.co.uk/ for more information on the FFPR rules

 

Chris Anderson (Associate, Brabners Chaffe Street Solicitors) gave a presentation on ‘Development Compensation for Young Football Players’.  One of the key drivers for this talk was the decision in ECJ – Case C-325/08 Olympique Lyonnais SASP v. Olivier Bernard & Newcastle United FC [41]:

“…In that regard, it must be accepted that, as the Court has already held, the prospect of receiving training fees is likely to encourage football clubs to seek new talent and train young players…”

 This will be a theme, the blog hopes to come back to in the near future, but essentially how much / little should be paid to clubs training (effectively as hot-houses) for new talent.

 Chris drew distinctions between:

  • the FIFA system which compensated for both the training costs of a player (although at times there were concerns these payments were ‘damages-based’ rather than a reflection of the actual training costs), and the ‘solidarity mechanism’ (which effectively acted as a wealth redistribution system to share up to 5% of any transfer between clubs training the player between the ages of 12 and 23).
  • The current domestic system which was based on agreeing costs (either by the agreement with clubs, or by reference to the Professional Football Compensation Committee (PFCC))
  • The proposed NEW domestic ‘Elite Player Performance Plan (EPPP)’ provisionally scheduled to start in July 2012. This system was created and driven by the PL to specifically produce greater numbers of talented home-grown players through increased coaching time and a more transparent (and legally defensible) fixed training cost mechanism. The new system is split into three main phases:
    • The Foundation Phase (U9-U11):  every academy charges a flat fee
    • Youth Development Phase (U12-U16): standardised model of fixed payments based on academy status
    • Professional Development Phase (U17-U21): Clubs (or PFCC) agree appropriate fee

 See also alternative perspectives from: http://www.bbc.co.uk/blogs/paulfletcher/2011/02/football_league_fears_over_pla.html; http://www.fiveyearplanfanzine.co.uk/News/football-league-votes-to-back-elite-player-performance-plan.htmlhttp://www.leedsunited.com/news/20111021/united-ceo-on-a-dark-day-for-football_2247585_2489344

 

Simon Boyes (Senior Lecturer, Nottingham Trent University) gave a presentation on ‘Sport and the European Union after the Lisbon Treaty’. The presentation traced the history of sport in the EU from its initial lack of academic interest, through the various reports, declarations, models and specificities to the present day and the Treaty of Lisbon. In doing so, Simon very much emphasised the evolutionary rather than revolutionary road to Lisbon. What was particularly interesting about the presentation was the thought that the EU was acting not so much as a regulator, but rather as a facilitator / supporter and using sport as a vehicle to engage in wider social missions (e.g. anti-doping, racism, corruption etc). These “softer” words such as “promotion…contribution…taking account of….developing” very much echoed Nick’s earlier talk on incorporating the UEFA licensing model into the Football League. Have all sporting regulators now embraced the softer stick? I thought that was just supposed to be horse-racing?

Any current discussion on Europe would not be complete without mentioning the recent Karen Murphy ruling (see here for a more in-depth analysis), and this was no exception! Interestingly, Simon suggested that fairness and openness were starting to creep into the ECJ rulings as values to be protected and upheld. This might be a trend to watch, particularly given the agenda for good governance and transparency.

 

 

Max Duthie (Partner, Bird & Bird Solicitors) gave a presentation on ‘The Sports Disciplinary Process’. The presentation started with, what seemed to be a recurring theme at the conference, the reluctance of the law to become involved in regulating sport (unless there was a clear departure from the rules / natural justice). Instead, Max pointed to the private, contractual nature of the disciplinary process, with governing bodies imposing their own regulatory codes of behaviour on the athletes under their jurisdiction.

Where I think that this presentation became more controversial was in the issue of jurisdiction, in particular who the sports were purporting to regulate. Max gave a number of examples:

  • Direct contractual links (Paul Stretford)
  • Implied contracts / contracts by conduct (Petr Korda)
  • Voluntary submission to jurisdiction (Dean Richards)

However, where I think the issue becomes greyer is in Sports Codes like the recent Lawn Tennis Association (LTA) Competition Regulations, effective from 1 September 2011:

1.3 By organising, entering, playing tennis in and/ or participating in any way in an LTA Official Competition (including as officials, staff, coaches, representatives, agents, medical staff, relatives and associates of a Player, a Player’s entourage and spectators), a person and/or entity agrees to be bound by and to comply with these Regulations.

It is one thing to bind an athlete to a particular code of conduct, but quite another to hold that they should be responsible for the conduct of all spectators, especially when the player is court-side during a match. On a similar theme, the regulations merely state ‘relatives’ – does this mean all relatives? Or do we need to apply an Alcock-esque ‘close-ties of love and affection test’?

There was also a particularly interesting discussion on whether disciplinary sanctions should be fixed or variable and Max talked about the trade-off between consistency (fixed) and discretion / proportionality (variable), before warning of the cautionary tale of Delon Armitage and the implications that plea-bargaining might have on future tribunals.

See also: http://www.guardian.co.uk/sport/2011/nov/08/delon-armitage-london-irish-england?newsfeed=true  

 

 

Adam Brickell (Head of Legal Compliance, British Horseracing Authority) gave a presentation on ‘The Investigative Processes of the British Horseracing Authority (BHA)’. The highly technical and diagrammatic nature of the presentation makes it somewhat difficult to summarise in any way that could begin to do justice to it. That said, Adam did make a number of interesting observations about the role of the BHA, and in particular the 5 areas that it is currently addressing:

    • Clear rules and regulations for participants
    • An effective investigative and intelligence capability
    • Robust disciplinary and licensing structures
    • Comprehensive, on-going education programme
    • Partnership approach with the Police, Betting industry and Gambling Commission

Two areas that may be of particular interest to watch in the future, are the concern that a number of betting firms are based offshore and, while they currently assist the BHA through Memorandums of Understanding (MoUs), these MoUs are not legally binding should the companies wish to subsequently withdraw their support. The second issue is linked to this and concerns the lack of regulation surrounding spread betting companies.

As an aside, Adam’s talk also continued Max’s theme from earlier about the regulation (or failure to regulate) members of the public not bound by the organisations rules. In particular, Adam gave the example of 6 individuals who placed suspicious bets on a particular horse, but fell outside the jurisdiction of the BHA when they decided not to cooperate with the investigation.

The final presentation belonged to Jonathan Merritt (Senior Lecturer, DMU) who gave us a sneak preview of his new PhD research into ‘Anti-Doping and Equestrianism’. We wish you every success in this venture…

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Battle of the Beers

October 24, 2011

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Sports Litigation Alert (Volume 8, Issue 19) just published a short piece I wrote entitled, ‘Battle of the Beers.’ It is reproduced below:

—–

In a country where ice hockey and cold beer go hand in glove, two of Canada’s biggest breweries have been battling it out over sponsorship rights as the official beer of the National Hockey League. On 3 June 2011, Newbould J. of the Ontario Superior Court of Justice held that the NHL and Labatt Brewing Company Limited reached a binding sponsorship agreement on 12 November 2010 which would have run from July 1, 2011 — June 30, 2014. As such, the NHL was consequently not free to enter into a similar but superior agreement with Molson Coors Canada Inc. on 8 February 2011. The NHL and Molson appealed and the court held in their favor on 12 July 2011.

In a ruling which has left Labatts all wet (and sudsy), the Court of Appeal for Ontario found that Newbould J. erred by making his finding in a manner not anchored to the pleadings, evidence, positions or submissions of any of the parties to the case. It was accordingly “procedurally unfair, or contrary to natural justice” for this conclusion to be reached [5]. Citing Rodaro v. Royal Bank of Canada (2002), 59 O.R. (3d) 74 (C.A.), the court held that a theory of liability which emerges for the first time in the reasons for judgment is never tested in the crucible of the adversarial process and thus raises concerns about the reliability of that theory [6].

It is noteworthy that Labatt did not plead that the parties had reached a binding sponsorship agreement on 12 November 2010 [12]. Labatt did not assert during the application hearing that a binding sponsorship agreement existed between the parties and expressly disavowed that it had reached a binding sponsorship agreement with the NHL [13]. The appeals court accepted the NHL’s submission that if it had known that the existence of a binding sponsorship agreement between the NHL and Labatt was at issue, it would have conducted its defence to Labatt’s application in a very different fashion [15].

While hockey is a small fish in the big frozen pond of professional sport relative to their much larger counterparts in football, baseball and basketball, there is still significant money to be made (and lost). Kyle Norrington, marketing director of Budweiser and regional brands for Labatt in Canada, commented in an affidavit filed with the Ontario Superior Court of Justice on the relationship of hockey and beer: “The NHL and the access it provides to Labatt … is the single greatest opportunity to grow Labatt’s share in Canada. The nexus of sports / heritage / emotional / tradition in hockey has no other Canadian comparable.” In contrast to the $37.2 million over three years agreement that Labatt was pursuing, the Molson deal is worth a reported $375 million over seven years.

It is the combination of the trial judge’s analysis of the renewal option in the 2002 Labatt/NHL agreement and his conclusion that a binding agreement was reached at the 12 November 2010 meeting that created the procedural unfairness problem [18]. Quoting Cronk J.A. in Grass (Litigation Guardian of) v. Women’s College Hospital (2005), 75 O.R. (3d) 85 (C.A.), leave to appeal refused, [2005] S.C.C.A. No. 310, the appeals court held that, “at the end of the day, the issues between the parties are defined by and confined to those pleaded” [53]. Since this did not happen, the NHL and Molson were denied procedural fairness and the judgment of Newbould J. was set aside.

Revenge is a beverage best served cold. Earlier this year, Coors Light lost the bragging and sponsorship rights as the official beer of the National Football League to Anheuser-Busch for $1.2 billion over six years. The $375 million Molson Coors/NHL deal reportedly includes approximately $100 million for the rights, $100 million in guaranteed advertising buys and $100 million in activation costs for staging special promotions to capitalize on its rights.

On 6 October 2011, Labatt disclosed that it had received confirmation that the Ontario Superior Court of Justice had dismissed its suit against the NHL and Molson Coors thus ending this round of the battle of the beers. The court plans to release the reasons behind its decision at a later date and Labatt said it would review its legal options at that time.

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Taking NIMBYSM to new heights

September 14, 2011

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A recent article in Spiegel Online International takes NIMBYSM (Not in my Back-Yard, Span or Mountain!) literally to new heights.

Lukas Eberle describes how villagers in the Swiss village of Lauterbrunnen are being deluged with BASE jumpers (an extreme variation of parachuting where jumps take place from Buildings, Antennas, Spans and Earth). Apparently, there were around 15,000 BASE jumps in Lauterbrunnen last year, a figure which sits in stark contrast to a number of jurisdictions around the world that ban or heavily license the sport.

For me, the article  raises two main issues: what degree of autonomy / paternalism is appropriate? and what is the cost of failed jumps (both in human and financial terms)?

 

AUTONOMY / PATERNALISM

When Lord Hoffman made his now seminal judgment in Tomlinson v. Congleton Borough Council [2002] EWCA Civ 309 that:

 “I think it will be extremely rare for an occupier of land to be under a duty to prevent people from taking risks which are inherent in the activities they freely choose to undertake upon the land. If people want to climb mountains, go hang gliding or swim or dive in ponds or lakes, that is their affair. Of course the landowner may for his own reasons wish to prohibit such activities. He may be think that they are a danger or inconvenience to himself or others. Or he may take a paternalist view and prefer people not to undertake risky activities on his land. He is entitled to impose such conditions, as the Council did by prohibiting swimming. But the law does not require him to do so.” [45]

A view echoed later in the case by Lord Hobhouse of Woodborough:

“In truth, the arguments for the claimant have involved an attack upon the liberties of the citizen which should not be countenanced. They attack the liberty of the individual to engage in dangerous, but otherwise harmless, pastimes at his own risk and the liberty of citizens as a whole fully to enjoy the variety and quality of the landscape of this country. The pursuit of an unrestrained culture of blame and compensation has many evil consequences and one is certainly the interference with the liberty of the citizen.” [81]

I am not sure that either judge had in mind the issue of BASE jumpers lobbing themselves off mountains, but that is now the situation facing the authorities in Lauterbrunnen. What is interesting about Lauterbrunnen is the shift from what would seem to be an initial openness and complete autonomy for anyone to jump to a much more structured self-regulation and licensing scheme imposed from within the sport.

The winds of change may however be blowing through the valleys once again if recent articles, websites and BASE discussion forums are to be believed. Indeed, it would now seem that public perception of the acceptability of the sport has changed following repeated injuries and fatalities (three deaths in particular occurred within three weeks of each other, earlier this summer, http://www.321base.eu/). Whether the sport will be able to resist the clamouring for tighter restrictions on the activity will therefore depend on whether the diverse multinational groups of jumpers can be regulated.

As the judgments in Tomlinson showed, there are no right or wrong answers rather a balancing of competing rights. In jurisdictions such as the US and UK, the sport is restricted by criminal trespass laws except for time-limited opportunities to jump from certain objects at particular occasions within the year, in a quasi-controlled and somewhat paternalistic manner; In this context, the libertarian approach taken by Switzerland seems to have led to the country becoming almost a victim of its own success. As access to sites has become easier, propelled by a burgeoning adventure tourism industry, so the sporting purists have been diluted by a wider variety of opportunistic jumpers.

And therein lies the problem, regulating such an extreme activity will always be inherently difficult given that the sport was created to push beyond traditional boundaries and restrictions. With such an underground, anti-establishment history, it is perhaps worth asking the question whether BASE jumping can ever be successfully self-regulated or policed?

To a certain extent, parallels do exist with society’s acceptance with off-piste snowboarding and other extreme activities. Indeed, it is even possible to get BASE jumping lessons! As strange as it sounds, there are BASE jumping schools, some websites even offer tandem BASE jumps so you can vicariously get that extreme adrenaline rush without all that bothersome training and experience (apparently these are becoming popular with stag parties!). I don’t know what is more worrying, the mainstream acceptance of BASE jumping or the thought of how the sport can get even more extreme once it ceases to be cool.

 

THE COST OF FAILED JUMPS

One other thing the article does do particularly well is to poignantly bring home that a fatal jump has consequences not just for the jumper, but also for potentially any innocent members of the public who might have witnessed the accident. It is one thing to extol the virtues of living life to the extreme in a desolate wilderness, or by pitting yourself against the elements, it is something entirely different to traumatise innocent villagers and children with the stark realities of uncontrolled gravity.

Some might say that we should celebrate that a jumper may have died doing something they loved, I worry though that in doing so we blur that line between applauding extremes of human performance and encouraging reckless acts in pursuit of that blaze of glory. BASE Jumping is not an entry-level sport, rather it should remain the prerogative of the experienced athlete, the jumper who respects nature, their own limitations, and the rights of those they share the environment with. The sport should be something more than simply jumping off a summit, it should also involve knowing when not to jump.

I do fear though from the future of the sport in Switzerland when local farmers are quoted as saying:

“The authorities don’t want to ban the jumping because even a dead BASE jumper brings money in,” the farmer says angrily. Many in the area would earn some cash in such a case, “the doctor, mountain rescue” and also the hotel and restaurant industry — “when the relatives travel here,”

Let’s just hope the jumpers become more respectful or the Swiss authorities turn out not to be as a as cynical as Farmer Feuz suspects….

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Contemporary Issues in Sports Law and Practice, 2010

November 9, 2010

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Many thanks to De Montfort University (DMU) and the British Association for Sport and the Law (BASL)  for hosting what was once again a very enjoyable afternoon of speakers. The half-day conference heard from five speakers exploring very diverse, but equally key topics:

  • Karen Moorhouse (RFL) discussed the Rugby Football League’s renewable three-year Club Licensing scheme and how this differed from a more American-style franchise system. The talk explored all aspects of this scheme from an overview of the current system and the criteria employed to define the applicable standards, to how the RFL had anticipated any potential challenges (both legal and fanbase). The proof of the pudding will really come in the next licensing round though when at least one Super League club will not have its current licensed renewed….
  • Alistair Maclean (The FA Group) gave an overview of the FA Group’s commercial rights. This was a very informative (and colourful) presentation and provided a thorough explanation of the new commercial strategy (FA Partner Programme 2010-14), blending a comprehensive whistle-stop tour through the FA Rights Inventory with commentary on the practicalities underpinning each branded item.
  • The blog’s very own, Jon Heshka (Thompson Rivers University, Canada) presented a paper on regulating ‘Technological Doping’ in sport. Jon outlined the key issues and controversies facing sport stemming from the current unprincipled approach to technology before analysing what options regulators and governing bodies could take. In particular, the talk debated the use of the WADA criteria for chemical enhancement and Jon posited whether the solution really lay in our definition of what were the essential characteristics of sport.
  • Christopher Stoner QC (Serie Court Chambers) provided a (much-needed) insight into Paralympic Disability Classification. The talk briefly covered all aspects of classification from a historical introduction to the current criteria for assessment, protests and appeals. What became particularly evident at the end of the talk was that while the current classification system has been in operation for a number of years, it is still evolving and being refined. It will be interesting to see what changes (if any) are made to protests ahead of the forthcoming 2012 Paralympics…
  • Ian Lynam (Partner, Charles Russell LLP) evaluated the use of player quotas in UK Sport, in particular, whether leagues could implement caps on the numbers of ‘foreign’ players. Essentially there were two key elements to this presentation, Direct Discrimination (as epitomised by the recently dropped FIFA 6+5 rule) and Indirect Discrimination (as seen in UEFA’s ‘Homegrown Player’ rule. Ian then rounded the event off with practical advice to any governing bodies wishing to implement such a rule.

The date for next year’s Contemporary Issues Event has now been set for 4th November 2011, information on how to book will follow nearer the time.

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Pocketful of Dollars: Hudson Bay Apparel Brands LLC v. Umbro International Ltd [2010] EWCA Civ 949

November 7, 2010

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Read the full case: http://www.bailii.org/ew/cases/EWCA/Civ/2010/949.html

The case concerned several sports clothing retailers, the claimants (Hudson Bay) are a North American Company and recently official suppliers to the Vancouver 2010 Winter Olympics, the defendants (Umbro), by contrast, are primarily a UK retailer focusing in particular on an international football (soccer) brand.  Essentially, the appeal concerned the validity of a series of contracts made between Umbro UK, Umbro’s subsidiary US company, Umbro Corp Inc (based in Delaware) and three North American clothing retailers: Hudson Bay Company (HBC), Dick’s Sporting Goods and a catalogue firm, S&S.

At issue was whether:

1)      Umbro UK had wrongly allowed Dick’s Sporting Goods to market off-field wear in breach of HBC’s exclusive licence

2)      HBC had acted in breach of contract by marketing on-field wear (Umbro UK’s counterclaim).

3)      Umbro UK had wrongly hindered HBC from exploiting its off-field licence in breach of an implied duty of co-operation

At first instance ([2009] EWHC 2861 (Ch)), the Judge (Mark Herbert QC) upheld all three claims. The claimants (HBC) contested aspects of each of these findings.

To understand the case, it is important to understand the nature of the disputed products. Essentially, Umbro UK sold three types of branded clothing:

  • “teamwear” (soccer kit provided to competitive teams [3])
  • on-field wear (was defined at [3] as “clothes used on the field of play”. While this is a pretty vague definition, there was a suggestion that the performance nature of the fabric e.g. high-wicking absorption qualities, the presence of sleeves and smaller less flamboyant logos all pointed to on-field use)
  • off-field wear (was defined at [7] as: “Men’s off-field apparel (meaning all apparel products that are not specifically intended to be used on the field of play for soccer including, for the avoidance of doubt, performance shorts and soccer jerseys) and shall, for the avoidance of doubt, only include the following: t-shirts, sweatshirts, sports polo shirts, hoodies (zip and non-zip), tank tops, reversible shirts, [shirts], sweatpants, sweat suits, wind suits, warm-up suits, rain suits, pull-over jackets, pullovers, outerwear, shorts.”) Lord Neuberger MR further stated that consideration of whether an item is on-field or off-field should be viewed from a hypothetical position rather than the subjective intentions of an actual buyer / supplier [18].

These products were then marketed through a number of North American stores. In Clause 9 of their Licensing Agreement with Hudson Bay, Umbro UK defined their “Distribution Channels” as falling into 7 broad sub-headings:

  • Sporting goods chains (Dick’s Sporting Goods)
  • Department stores (Macy’s and Dillards)
  • Mid-tier department stores (although the clause listed several stores they not named in the judgment)
  • Apparel speciality stores (these stores were similarly not named)
  • The Ad speciality market who sold promotional products via corporate catalogues (S&S, Broder Brothers, Heritage Imprints, Staton and Virginia Tees)
  • Soccer speciality retail (no stores were listed, just ‘as directed by the Licensor’)
  • Close-out stores (four stores were listed with restrictions limiting annual sales to 30% of the total)

Umbro UK licensed through Umbro Corp inc, the rights to manufacture on-field wear to Dick’s Sporting Goods, HBC had the rights to off-field wear, while Umbro UK kept the rights to teamwear for itself. What the Court(s) had to decide was whether HBC, Umbro and Dick’s breached the terms of their respective contractual agreements. 

The first claim arose because Umbro UK had authorised Dick’s to sell some goods (in particular a number of t-shirts and tank-tops) which were not specifically intended for on-field in breach of their exclusive arrangement with HBC. Although this breach was accepted by all parties, ultimately the only remedy for HBC was in damages for breach of contract as Dick’s were not joined as a party to the case.

The second claim arose through Hudson Bay’s creation of a pocket-less ‘soccer basics’ and matching tracksuit range sold through S&S catalogues [20]. While it was widely accepted that this clothing was suitable for a myriad of athletic and leisure purposes [28], both Mark Herbert QC and Lord Neuberger MR criticised the lack of pockets on this clothing range and argued that this omission was absolutely critical to the case. Indeed, they suggested that the essence of an off-field product was that it should have “at least one pocket – for money, keys, mobile phone, or an iPod, for example” [30]. Hudson Bay didn’t help themselves in this regard when even their own marketing specialist (Jock Thompson) gave witness testimony that “adding pockets converted on-field garments into off-field garments, and that removing pockets converted garments the other way” [28]. The Court also heard testimony that FIFA forbade any on-field products to include pockets [30]. Given these conclusions, it was highly likely that these products would be considered to be “on-field” wear in contravention of HBC’s licensing agreement [31].

Similarly, although the Court accepted that tracksuits would generally be characterised as off-field wear, the fact that tracksuits were marketed alongside the shorts and t-shirts in both the S&S catalogue [33] and in Dick’s Sporting Goods [34] was enough to transfer the products into on-field wear, thereby absolving Dick’s Sporting Goods from any liability for breach of contract, and creating liability for Hudson Bay for their sales to S&S. The multi-purpose and multi-environment nature of the tracksuit was not therefore the important part, but rather in what context it was sold. The same tracksuit could therefore be both on-field and off-field depending on how it was marketed. This seems a particularly ambiguous way to conduct a commercial licensing agreement with two direct competitors, but perhaps grey is this season’s fashionable colour????!

Hudson Bay’s defence to this claim, that they were given the authority to market this clothing by Miss Barbara Jackson (appointed President of Umbro US in 2006) was however rejected [37]. At first glance this might seem surprising given that there was no doubt that Miss Jackson had both orally approved the removal of pockets from the “soccer basics collection” marketed in S&S [41] and signed a variation authorising this range [57], on closer reflection though, it is clear that Hudson Bay could not rely on either of these approvals [42] as they knew, or should have known that neither could not have bound Umbro UK.

While the Court held (obiter) that a company like Umbro UK could be bound “(through an implied term, implied agency, or, possibly, on some other basis) by a consent given by Miss Jackson” [50], none of these applied in this case as Hudson Bay could not have reasonably have believed that this approval would have been binding on Umbro UK given the previous detailed contractual history between the companies [59]. Makes you wonder what exactly Miss Jackson’s role was then? The devil is most firmly in the detail and in this instance the detail said that only Umbro UK could grant approval of designs.

For the same reasons, an estoppel argument also failed, as did a suggestion that Umbro UK had not enforced its prohibition quickly enough [60].  Even if the Court was wrong though and a waiver (license) was valid, this did not help HBC as such a conclusion could only defeat a damages claim for past marketing of the pocket-less ‘soccer basics’ clothing rather than authorise future sales of this range [62] which is what HBC wanted.

Perhaps unsurprisingly, Umbro UK’s decision not to process any further sales orders from HBC during this litigation (which formed the basis of HBC’s third claim) also failed as this was a reasonable commercial decision for Umbro to have taken [66], although Umbro were in breach for unreasonably failing to consider new clothing designs from HBC during the same period.

On a slightly lighter note, the pun of the case must go to Lord Neuberger at paragraph [32] when in discussing whether the provision of larger size products (XL, XXL and XXXL) was inconsistent with an on-field collection stated that: “we were not told what size waist would be accommodated by XXXL, and, anyway, people with ample waists are not excluded from playing soccer. Accordingly, I would not accord that point any weight [emphasis added].” 

Behind the scenes at Umbro Football Design (Youtube):

Hudson Bay advert from the Vancouver Winter Olympics (Youtube):

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Proactive Sports Management Ltd v. 1) Wayne Rooney, 2) Coleen Rooney (formerly McLoughlin), 3) Stoneygate 48 Limited, 4) Speed 9849 Limited [2010] EWHC 1807 (QB)

October 16, 2010

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Proactive Sports Management Ltd v. 1) Wayne Rooney, 2) Coleen Rooney (formerly McLoughlin), 3) Stoneygate 48 Limited, 4) Speed 9849 Limited [2010] EWHC 1807 (QB)

The case essentially concerns the image rights contract between Wayne Rooney and his former agents (Proactive Sports Management Ltd). Proactive were seeking unpaid commission and invoices totalling between £1-3m against Wayne and over £200,000 against Coleen.

At 821 paragraphs long though, it is a truly mammoth judgment. Below is a précis of the most important points. (You can read the full case report at: http://www.bailii.org/cgi-bin/markup.cgi?doc=/ew/cases/EWHC/QB/2010/1807.html&query=rooney&method=boolean)

Why was the case brought?

Essentially Rooney signed an Image Rights Representation Agreement (IRRA) with Proactive Sports Management Ltd, to represent him in his commercial affairs for the next 8 years. Midway through this contract, when his agent (Paul Stretford) was fired from Proactive and set-up a new sports agency, the Rooney’s followed him across and purported to sever links with Proactive on the 18th December 2008. Proactive sued Wayne and Coleen for liquidated damages and commission that they felt continued to be owed to them on the various sponsorship contracts negotiated on their behalf by Proactive.

The Rooney’s successful counter-claim against Proactive was based on their view that any contract between them is ‘void, invalid, unenforceable and of no effect’ as the 8yr term represents a restraint of trade.

Aren’t there rules governing Player Contracts?

On-field representation agreements are comparatively well regulated by the FA: they are limited to a maximum term of two years and must be in writing. Essentially these contracts are dependent on a player’s skill and given this, an agent would normally take an average fee of 5% to represent their one-off role in negotiating the contract.

By contrast however, contracts governing off-field activities (such as image rights) are wholly unregulated by both the FA and FIFA, although the Inland Revenue is now looking into this area closely (see http://www.dailymail.co.uk/sport/football/article-1311210/Wayne-Rooney-facing-crisis-taxman-gets-set-chase-1million.html). Unlike on-field agreements, these commercial contracts need constant servicing and brand protection / management, therefore agents will usually charge an average fee of 20% to reflect the additional work undertaken. It was this type of contract that formed the basis of the case.

  • 17th July 2002, Rooney signed an 8yr, on & off field agreement with Proactive (this was later varied on the 16th Jan 2003 to strip out off-field components)
  • 19th September 2002, Rooney again signed an 8 yrs agreement, however this was quickly  torn up and replaced with Dec  version (below)
  • 14th December 2002, Rooney signed a 2yr on & off field agreement with Proactive, which was renewed in 2004 and 2006. Critics have suggested that this was only signed so a copy of the contract could be lodged with the FA.
  • 16th January 2003, Rooney signed over his commercial rights to Stoneygate. Stoneygate in turn signed an 8yr representation agreement with Proactive.
  • 1st Feb 2003, Rooney signed a playing contract with Everton FC (actually executed on  or about 15th Feb 2003)
  • 23rd August 2004, Rooney transferred to Manchester United FC in a £27m deal (the MUFC Image Rights contract was later varied to extend the contract to 30th June 2012)

 

Who was involved in the case?

Essentially, there were five main companies involved to some degree:

  • Proform Sports Management Ltd is the agency that Wayne was signed to as a 15 yr old by Peter McIntosh. This agreement was later held to be unenforceable (Proform Sports Management Ltd v. Proactive Sports Management Ltd [2006] EWHC 2903 (Ch)).
  • Proactive Sports Management Ltd is the agency that Wayne moved to at 17 and remained with for the majority of his professional career.
  • Stoneygate 48 is the limited company set-up to manage Wayne’s Image Rights
  • Speed 9849 is the limited company set-up to manage Coleen’s commercial affairs (Harper Collins, OK! Magazine etc). Although there was no formal contract between Coleen and Proactive, the Court implied this from past conduct [775] and calculated commission on the basis of a 20% rate.
  • Triple S Ltd – is a new company informally appointed July 2009 to act as Stoneygate’s Agent in relation to image rights following Paul Stretford’s move from Proactive.

And a number of key people:

  • Paul Stretford – formerly chief executive of Proactive until late 2008, Stretford is a Director of Stoneygate and his firm acts as Rooney’s on-field and off-field agent. While Mr Justice Hegarty QC found Stretford to be a highly able and effective agent, he was criticised in court for his failure to be a truthful or reliable witness [311].
  • Mel Stein – a solicitor and football agent who acted as key witness for the claimants
  • Gordon Taylor OBE – Chief Executive of the Professionals Football Association (PFA) who acted as key witness for the defendants

 

So what are Image Rights?

The Court defined these rights as:

“Image Rights means the right for any commercial or promotional purpose to use the Player’s name, nickname, slogan and signatures developed from time to time, image, likeness, voice, logos, get-ups, initials, team or squad number (as may be allocated to the Player from time to time), reputation, video or film portrayal, biographical information, graphical representation, electronic, animated or computer-generated representation and/or any other representation and/or right of association and/or any other right or quasi-right anywhere in the World of the Player in relation to his name, reputation, image, promotional services, and/or his performances together with the right to apply for registration of any such rights.”  [187]

Once at Manchester United, Rooney was restricted to signing only 5 sponsorship agreements and 5 merchandise agreements. There were two main reasons for this restriction, the first was to avoid diluting the Rooney Brand, the latter was to ensure that Rooney had enough time to focus on his football rather than the demands of sponsors. At the time of the case, the main sponsors were:

  • Nike, unusually this was a 10 yr contract to take advantage of Rooney’s potential growth
  • Coca Cola (4 yr contract)
  • EA Games (3yr contract)
  • Manchester United FC
  • Asia Pacific Breweries Ltd (2yr contract to promote Tiger Beer)
  • Big Blue Tube
  • Pringles Crisps

 

How did Proactive argue their case?

The first attempt to derail the Rooney case was to cast doubt on the credibility of Paul Stretford. Earlier in 2008, Stretford had been charged with various FA disciplinary offences relating to the 2002 Agreement and terms. These related to making false or inaccurate statements at Warrington Crown Court during the trial of John Hyland, Anthony Bacon, Christopher Bacon for offences of obtaining money by deception (by demanding money from Mr Stretford in connection with Wayne’s move from Proform to Proactive). In Court, Stretford denied Rooney had signed any footballing representation agreement prior to 12th Dec 2002 (even though he knew Rooney had signed two agreements in July and Sept 2002), although he did acknowledge there was an IR agreement. When the truth was later discovered, the Crown decided it could no longer rely on Stretford’s evidence and withdrew its case, while the Jury entered formal verdicts of not guilty for the three men. Subsequently the FA Regulatory Commission commenced disciplinary proceedings against Stretford and decided on 9th July 2008 to fine him £300,000 and suspend him from acting as a player’s agent for 18months (with the final 9 suspended). Although Proactive paid the fine, Stretford later resigned as a director of Proactive on 20th May 2008.

Post-Termination Commission

The main debate in the case was in relation to any right to Post-Termination commission payable at the end of a contract. Essentially the question before the court was if an agent negotiates a sponsorship and is then replaced or fired, are they still entitled to receive 20% commission over the life of that contract, even if the player is represented by a new agent?

[469].….“On the one hand, it might be said that the legitimate commercial interests of the agent could only properly be protected if he was entitled to receive post-termination commission on contracts which he had negotiated. Otherwise, it might be said, he might find himself in a situation in which he had successfully negotiated a highly lucrative, long-term commercial sponsorship agreement just before the end of his contract only to find that his client immediately transferred his business to another agent, thus depriving the original agent of any proper remuneration for the work which he had done.

 [470]. On the other hand, it might be said that if an agent was entitled to post-termination commission notwithstanding that a new agent had been appointed in his place, it would mean that he would continue to receive substantial sums by way of commission without having to provide any further services to his client. By the same token, in those circumstances, the new agent might have to service the inherited contracts without payment or the client might, in effect, have to pay double commission.”

 After very long and at times technical legal arguments, the Court decided that a right to commission in this instance was dependent on a service being provided – no service provided by an agent, no commission [553]. One other factor helped in reaching this decision, that the right to post-termination commission was not explicitly drafted within the contract and this was essential particularly where there was an imbalance between a contract professionally drafted by solicitors (Proactive) and commercially unsophisticated parties without any independent legal advice (Rooneys) [554].

Termination Clause within the contract

Most of the arguments made by both parties in relation to the validity and effect of the termination clause within the contract were rejected by the Court. In particular, the Court was not persuaded by the estoppels arguments raised by claimants, or the mistake argument raised by the defendants [600]. The Court also rejected the argument that the contract was ‘affirmed’ by Mr Stretford passing on any knowledge and risks of the unenforceability of the IRRA due to his prior knowledge as a Proactive Director, as he would have been under a duty of confidence not to disclose privileged legal advice [678]. The case therefore effectively turned on the question of Restraint of Trade.

Restraint of Trade (RoT)

“Any contract or contractual stipulation which is in restraint of trade is Prima facie unenforceable unless it is reasonable having regard to the interests of the parties and the public.” [621]

While it is often possible to sever offending RoT clauses from the rest of the contract, this was not possible on this occasion. The Court felt that a number of factors needed to be taken into account, in particular, the fact that there was:

  • No meaningful negotiation
  • A Flat fee of 20% was payable on each sponsorship opportunity regardless of the amount of the contract
  • The Rooney family had no commercial experience and were utterly unsophisticated in financial and contractual matters
  • The Rooney family never took any independent legal advice
  • The Image Rights Representation Agreement was unique in the industry in many respects including its long duration (The Court did however note that a 2-5yr term could have been acceptable  [723])
  • The IRRA imposed substantial restrictions on Rooneys freedom to exploit his earning ability
  • It was irrelevant whether any restriction on earning ability was partial or total
  • The cost of termination represented a significant disincentive to exit and was essentially penal rather than attempt to quantify the damages payable

 Once this RoT conclusion had been reached, all that was left was to conclude was that Proactive were entitled to quantum meruit (a restitutionary award based on objectively valuing the services they had actually provided) for any contract payments falling due before the relationship had terminated. But importantly, nothing after this termination.

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Ambush Marketing: It’s all about perspective

October 5, 2010

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The CMO Council just published an article Kris and I wrote entitled, ‘Ambush Marketing: It’s all about perspective’ in its Doing Away With Foul Play Report. Here are a few excerpts:

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How one sees ambush marketing depends upon the eyes of the beholder. Much like the famous perception test designed by Harvard psychologist Edwin Boring where some viewers see a young woman while others see an old woman, how ambush marketing is viewed depends upon what side of the fence you sit. Some marketers may view it as illegal and unethical, while others see it as a necessary and sufficient practice in an increasingly competitive marketplace.

How marketers and lawyers view ambush marketing is ultimately a matter of perspective. Marketers see opportunity and seek to exploit it, to get as close as possible to the line without crossing it. Lawyers, in turn, are on the lookout for marketing campaigns that get too close to the line. It is the duty of inhouse lawyers to rein in their marketers when they get too close for comfort, and it is the corresponding responsibility of Crown counsel and lawyers for the competition to detect when the ambush marketer crosses the line and is in breach of the law.

Given the complex relationship between marketing and the law, as well as some companies’ preparedness to capitalize upon unauthorized associations with mega-events, it should come as no surprise that some of the world’s largest companies – including Puma, Kodak and Pepsi – have been both on the giving and receiving end of an ambush.

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The full article is here

The link to the full report is http://www.cmocouncil.org/resources/form-foulplay.asp

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Prettiest Ambush I’ve ever seen!!!

August 26, 2010

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Jon and I had the following article, “Ambush marketing: FIFA’s rights protection programme” recently published in the World Sports Law Reports (WSLR).

“Amidst the buzzing of the Vuvuzela’s and the occasional officiating error, the 2010 FIFA World Cup South Africa will also be remembered for the expulsion of 36 orange mini-skirt wearing women from a match and
the subsequent prosecution (and then dropping) of charges against the two alleged ‘ringleaders’ behind the incident. Whilst titillating, this is not just a story about beautiful women being used to market a product. The real story is about the lengths to which companies will go to exploit loop-holes in the existing law and what implications these campaigns have for tackling counter-insurgency actions at future events. The article will conclude by examining how FIFA and Anheuser-Busch (the official beer sponsor) were so comprehensively ambushed that Bavaria rocketed from unmeasurable before the ambush to the fifth most visited beer website in the UK,  while Nike’s unofficial ‘Write the Future’ campaign was widely viewed as the most successful marketing campaign of the World Cup……”

The Editors have kindly allowed us permission to make the full article available on the blog as a pdf download: WSLRaug10lines[1]

The ‘Bavaria’ girls in question:

DimDim girls:

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