Asser International Sports Law Blog

Editor’s note: Sven Demeulemeester and Niels Verborgh are sports lawyers at the Belgium law firm, Altius.

Introduction

In its 16 November 2018 judgment, the Court of Justice of the European Free Trade Association States (the EFTA Court) delivered its eagerly awaited ruling in the case involving Henrik Kristoffersen and the Norwegian Ski Federation (NSF).

On 17 October 2016, Kristoffersen had taken the NSF to the Oslo District Court over the latter’s refusal to let the renowned alpine skier enter into a sponsorship with Red Bull. At stake were the commercial markings on his helmet and headgear in races organised under the NSF’s umbrella. The NSF refused this sponsorship because it had already granted the advertising on helmet and headgear to its own main sponsor, Telenor. Kristoffersen claimed before the Oslo District Court, that the NSF should be ordered to permit him to enter into an individual marketing contract with Red Bull. In the alternative, Kristoffersen claimed damages up to a maximum of NOK 15 million. By a letter of 25 September 2017, the Oslo District Court referred several legal questions to the EFTA Court in view of shedding light on the compatibility of the rules that the NSF had invoked with EEA law.

If rules do not relate to the conduct of the sport itself, but concern sponsorship rights and hence an economic activity, these rules are subject to EEA law. The EFTA Court ruling is important in that it sets out the framework for dealing with - ever more frequent - cases in which an individual athlete’s endorsement deals conflict with the interest of the national or international sports governing bodies (SGBs) that he or she represents in international competitions.

The Kristoffersen ruling: the EFTA Court targets athlete endorsement deals

A. Facts and procedures

Henrik Kristoffersen, silver medalist at the 2018 Pyeongchang Olympic Games and a bronze medalist at the 2014 Sochi Olympic Games, is a member of the Norwegian national alpine skiing team. Kristoffersen is not an employee of the Norwegian Ski Federation (NSF), but he did sign a standard athlete’s contract with the NSF to be able to participate in the national team.[1]

The Norwegian Ski Federation (NSF) - a non-profit organisation - is a sports organisation, which organises, among other things, activities in the discipline of alpine skiing. The NSF is a member of both the International Ski Federation (FIS) and of the Norwegian Olympic and Paralympic Committee and Confederation of Sports (NIF). Therefore, the NSF is subject to the FIS’ and the NIF’s regulations. Only the FIS and its national federations, such as the NSF, organise alpine skiing races of financial value to alpine skiers in classic disciplines, such as the slalom and downhill skiing. The NSF is financed by public funds and marketing contracts. The revenues gained from marketing activities accounted for 71% of the NSF’s total income in 2015.[2]

Individual sponsorship agreements are subject to the NSF’s approval,[3] although the NSF’s standard athlete contract foresees an exception[4] in which the athlete may enter into individual sponsorship agreements with equipment providers in the NSF’s “skipool”. The NSF skipool is a pool scheme that is open to selected equipment suppliers without requiring the NSF’s approval. To become a member of the NSF skipool, suppliers must be approved as an equipment supplier by the FIS/NSF. In addition, they also must pay an annual fee to the NSF. Athletes are prohibited from entering into agreements with any supplier that is not a member of the NSF skipool.

The NSF covers all expenses (e.g. board and lodging, transport, equipment, medical support, insurance, etc.) of the members of the Norwegian national alpine skiing team for approximately 200 days a year, but the athletes do not receive any of the funds that the NSF collects from the main and co-sponsors as the athletes’ own income.[5]

This specific case concerns a dispute between Kristoffersen and the NSF relating to an individual sponsorship contract that Kristoffersen had with Red Bull[6] for helmet and headgear worn in races under the auspices of the NSF and the International Ski Federation (FIS). Kristoffersen and Red Bull had been seeking to enter into such an agreement since 2014, but the NSF had refused permission for Kristoffersen to sign the contract at the end of April 2018.[7] The NSF had already decided to include space upon its helmet and headgear in the contract with its main sponsor, Telenor.

B. Questions to the EFTA Court and its answers

The questions

In this dispute, the Oslo District Court referred six questions to the EFTA Court, the supranational judicial body responsible for interpreting the Agreement on the European Economic Area (EEA) for the EFTA States that are parties to the EEA Agreement (Iceland, Liechtenstein and Norway).[8]

The questions essentially covered two issues.

The first issue was whether rules, such as those in the NSF Joint Regulations, on prior control and consent for individual sponsorship contracts regarding commercial marking on the national team’s equipment, or the application of those rules, constitute a restriction under Article 36 EEA Agreement or the Services Directive.[9]

The second issue was whether such a restriction on an athlete’s right to enter into sponsorship agreements could be justified.

Prior control and consent for individual sponsorship contracts can constitute a restriction

Applicability of Article 36 EEA Agreement

The EEA Agreement’s free movement rules may also apply to the rules laid down by sports associations.[10] With reference to the Court of Justice of the European Union’s long-standing case law,[11] the EFTA Court has concluded that sport is subject to EEA law to the extent it constitutes an economic activity. Athletes’ sponsorship contracts entail marketing services, which constitute, as such, an economic activity.[12] The EFTA Court has also concluded that the cross-border element is present since the proposed sponsorship contract involved a Norwegian athlete and an Austrian company; and the professional competitions in which Kristoffersen participated took place in several EEA States.[13]

Next, the court has determined whether the present case concerns the freedom of establishment or the freedom to provide services. The court has stated that “the rules in question concern, at least predominantly, the freedom to provide services, as opposed to the freedom of establishment” since the NSF’s rules may grant or refuse permission to athletes to enter into individual marketing contracts, which will have an impact on Kristoffersen’s opportunities to provide marketing services. By contrast, the rules will not or only remotely, affect an athlete’s freedom to establish themselves as professional skiers, which is the activity from which their marketing activity derives.[14]

The prohibition of restrictions on the freedom of providing services

Article 36 EEA Agreement prohibits restrictions on the freedom of providing services within the EEA. Measures liable to hinder or make less attractive the exercise of a fundamental freedom guaranteed by the EEA Agreements are an encroachment upon this freedom.

A system of prior control and consent for individual sponsorship contracts appears to make the exercise of Kristoffersen’s marketing activity less attractive. Under the EFTA Court’s settled case law, prior authorisation schemes amount to a restriction on the freedom to provide services.[15] However, this is ultimately for the referring court to determine.[16]

Justifications to restrictions

A restriction on the freedom to provide services (Article 36 EEA Agreement) may be justified on the grounds set out in Article 33 EEA Agreement[17] or by overriding reasons in the public interest, provided that it is appropriate to secure the attainment of the objective that it pursues and does not go beyond what is necessary to attain it.[18]

Legitimacy of the aims pursued by the measures at issue

Aims of a purely economic nature, such as the desire to increase profits, cannot justify a restriction on the freedom to provide services. The aim of the measure in this case appears, however, to be related to ensuring a stable basis for the NSF’s activities. The court has found it relevant that the NSF is a non-profit sports association, that the marketing revenues are by far its most important source of income (71% of the NSF’s total income in 2015) and that the overall revenue is not only used for professional sports, but also for recruitment, education and children’s and reactional sports.

The EFTA Court has indicated – with reference to the CJEU’s Bernard judgment [19] - that the objective of encouraging the recruitment and training of young athletes is legitimate. But, it is not sufficient for the restrictive measure to resort to a legitimate aim in general: it must be assessed whether the measure at issue actually pursues the invoked aim. The referring court must therefore identify, in the light of the facts of the case, the objectives that are in fact pursued by the contested measure.[20]

Suitability/Consistency

The party imposing the restriction must demonstrate that the measure is suitable to achieve the legitimate objective pursued along with genuinely reflecting a concern to attain that aim in a consistent and systematic manner.[21] The EFTA Court states that it is reasonable that some of the revenues are only dedicated to professional athletes, but that the income generated must also benefit the legitimate aims (such as recruitment, education, children’s and recreational sports).[22]

In this case, the EFTA Court has concluded that the rules on prior control and consent for individual sponsorship contracts, such as those laid down in the NSF Joint Regulations, are suitable to achieve that objective since a substantial part of the income is spent on the objective of encouraging the recruitment and training of young athletes.[23]

Necessity

The referring court must also assess whether the measure goes beyond what is necessary to attain that objective. The necessity test implies that the chosen measure must not be capable of being replaced by an alternative measure that is equally useful but less restrictive to the fundamental freedoms of EEA law.[24] In this case, it must be assessed whether there are other less restrictive measures that would ensure a similar level of resources.[25]

The Court believes that the assessment of the system’s necessity must take account of the fact that the NSF and the athletes are mutually dependent on one another.[26] The system must ensure that the athletes receive a fair share of the revenues from sponsorship contracts. If not, that would constitute a disproportionate restriction on the athletes’ freedom to provide sponsorship services. The Court has argued that in this case it appears that revenue generated from marketing contracts constitutes the most important source of income for both the NSF and the athletes.[27] In addition to that, the Court has also taken into account that the NSF covers all the expenses of members of the Norwegian national alpine skiing team for approximately 200 days a year. Furthermore, the athletes may enter into individual sponsorship contracts with equipment providers in the NSF skipool without the NSF’s approval. Outside the NSF skipool, additional contracts may be entered into with the NSF’s approval.[28]

Kristoffersen concluded several of those contracts, which may have an impact on the assessment of the referring court about whether the athletes receive - through the system in place - a fair share of the revenue from the potential market for sponsorship contracts.[29]

C. Guidelines for concrete decisions and procedural aspects

A system of prior control and consent for individual sponsorship contracts may constitute a justified restriction on athletes’ freedom to provide sponsorship services, so long as it pursues a legitimate aim, is suitable and does not go beyond what is necessary to attain the aim.[30]

While a system of prior control and consent for individual sponsorship contracts may be justified as such, it does not necessarily follow that every individual decision taken under that system is equally justified. Such individual decisions must pursue the legitimate aims of the system in a suitable and proportionate manner and there must be a fair balance between the interests of the NSF and the professional athletes.[31]

The existence, at the time of the athlete’s application for approval, of a collective sponsorship contract with the NSF’s main sponsor, Telenor, covering helmet and headgear, may be relevant to the assessment of whether the concrete refusal is justified. The assessment of proportionality may also include the issue of whether the NSF was aware of Kristoffersen’s intention to enter into a separate sponsorship agreement when NSF concluded its collective sponsorship contract, as well as the impact of such a collective sponsorship agreement on Kristoffersen’s ability to generate income from his profession. Furthermore, the referring court may also take account of the impact of individual sponsorship contracts on the NSF’s ability to achieve the legitimate aims invoked.

Besides that, the system and the decisions under a national sports federation’s approval scheme for individual marketing contracts may not be arbitrary and must satisfy certain procedural requirements (such as: the proper communication of an individual decision within a reasonable time; and a review of the decision before an independent body should be available).[32]

Striking the right balance between collective interests and individual ones can be difficult as the EFTA Court’s decision illustrates. Even though the EFTA Court sets out some key principles for evaluating advertising and sponsorship restrictions, it leaves the ultimate call for balancing those interests to the Oslo District Court.

Conclusion

The EFTA Court has drawn a clear ‘line in the sand’ for SGBs.

The Court’s ruling considers that a system of prior control and consent for athlete’s individual sponsorships, and potential refusal of such sponsorship, constitutes a restriction of the freedom to provide services, to the extent that the system makes less attractive the exercise of an athlete’s freedom to provide a marketing service. Such a restriction will be acceptable only if it pursues a legitimate aim, is suitable and does not go beyond what is necessary to attain the aim.

Aims of a purely economic nature, such as the desire to increase profits, cannot justify such a restriction. The objective of encouraging the recruitment and training of young athletes can however be a legitimate aim, to the extent that a substantial part of the income is indeed spent on encouraging the recruitment and training of young athletes. Also, a fair balance between the federation’s interests and the particular athlete’s interests is required. The EFTA Court considers that SGBs and athletes are often mutually dependent on one another. Athletes must receive a fair share of the revenues from sponsorship contracts. A decision to refuse an endorsement must be well-reasoned and communicated to the athlete within a reasonable timeframe. In addition, a review procedure before a body independent of the federation should be available.

In times where SGBs’ advertising and sponsorship restrictions are already under scrutiny from a competition law perspective,[33] the EFTA Court has added internal market arguments to the mix. Both the fundamental freedoms and the competition law arguments are likely to bolster individual athletes seeking to increase revenue from their sporting activities. The decision clearly indicates that SGBs should be careful when dealing with sponsorship deals.

At the same time, the ruling shows SGBs how to adopt sponsorship regulations that are the least likely to infringe EEA law. To justify restrictions, the SGBs will need to come up with a transparent, intelligent system in which restrictions are justified in view of (proven) redistribution of income to support the training of athletes and the funding of amateur sports. The presence of independent review procedures will be key. In that respect, the EFTA Court ruling may serve as ‘ammunition’ for those looking to increase transparency and good governance in the seat of SGBs.

[1] EFTA Court 16 November 2018, Case E-8/17, Kristoffersen/NSF, par. 8.

[2] EFTA Court 16 November 2018, Case E-8/17, Kristoffersen/NSF, par. 9-10.

[3] It follows from art. 200.3 and 204.1 of the FIS International Ski Competition Rules (joint regulations for alpine skiing), section 13-3(3) and chapter 14 of the Norwegian Olympic Committee’s Statutes, and Point 206.2.5 of the NSF Joint Regulations.

[4] EFTA Court 16 November 2018, Case E-8/17, Kristoffersen/NSF, par. 17.

[5] EFTA Court 16 November 2018, Case E-8/17, Kristoffersen/NSF, par. 19.

[6] Red Bull GmbH has its headquarters in Austria.

[7] EFTA Court 16 November 2018, Case E-8/17, Kristoffersen/NSF, par. 20.

[8] Article 34 of the “Agreement between the EFTA States on the Establishment of a Surveillance Authority and a Court of Justice” foresees in the possibility for courts or tribunals in an EFTA State (Norway, Iceland and Liechtenstein) to request the EFTA Court to give an advisory opinion on the interpretation of the EEA Agreement.

[9] Directive 2006/123/EC of the European Parliament and of the Council of 12 December 2006 on service in the internal market.

[10] EFTA Court 16 November 2018, Case E-8/17, Kristoffersen/NSF, par. 68.

[11] See among others: CJEU 12 December 1974, n° 36-74, ECLI:EU:C:1974:140; Walrave and Koch/Union Cycliste International, par. 4; CJEU 14 July 1976, nr. 13/76, ECLI:EU:C:1976:115, Donà/Mantero, par. 12; CJEU 15 December 1995, n° C415/93, ECLI:EU:C:1995:463, ‘Bosman’, par. 73; CJEU 18 July 2006, n° C-519/04 P, ECLI:EU:T:2004:282, Meca-Medina and Majcen/Commissie, par. 37-44.

[12] EFTA Court 16 November 2018, Case E-8/17, Kristoffersen/NSF, par. 66.

[13] EFTA Court 16 November 2018, Case E-8/17, Kristoffersen/NSF, par. 67.

[14] EFTA Court 16 November 2018, Case E-8/17, Kristoffersen/NSF, par. 69.

[15] EFTA Court 10 May 2016, Case E-19/15, ESA/Liechtenstein, par. 85.

[16] EFTA Court 16 November 2018, Case E-8/17, Kristoffersen/NSF, par. 76.

[17] Article 33 EEA Agreement “The provisions of this Chapter and measures taken in pursuance thereof shall not prejudice the applicability of provisions laid down by law, regulation or administrative action providing for special treatment for foreign nationals on grounds of public policy, public security or public health.”

[18] EFTA Court 16 November 2018, Case E-8/17, Kristoffersen/NSF, par. 114.

[19] CJEU 16 March 2010, n° C-325/08, ECLI:EU:C:2010:143, Olympique Lyonnais

SASP/Olivier Bernard and Newcastle UFC, par. 23.

[20] EFTA Court 16 November 2018, Case E-8/17, Kristoffersen/NSF, par. 117.

[21] EFTA Court 16 November 2018, Case E-8/17, Kristoffersen/NSF, par. 118.

[22] EFTA Court 16 November 2018, Case E-8/17, Kristoffersen/NSF, par. 119.

[23] EFTA Court 16 November 2018, Case E-8/17, Kristoffersen/NSF, par. 120.

[24] EFTA Court, 16 May 2017, Case E-8/16 Netfonds Holding ASA, Netfonds Bank AS and Netfonds Livsforsikring AS/the Norwegian Government.

[25] EFTA Court 16 November 2018, Case E-8/17, Kristoffersen/NSF, par. 122.

[26] EFTA Court 16 November 2018, Case E-8/17, Kristoffersen/NSF, par. 124.

[27] EFTA Court 16 November 2018, Case E-8/17, Kristoffersen/NSF, par. 124.

[28] EFTA Court 16 November 2018, Case E-8/17, Kristoffersen/NSF, par. 125.

[29] EFTA Court 16 November 2018, Case E-8/17, Kristoffersen/NSF, par. 125.

[30] EFTA Court 16 November 2018, Case E-8/17, Kristoffersen/NSF, par. 125.

[31] EFTA Court 16 November 2018, Case E-8/17, Kristoffersen/NSF, par. 127-128.

[32] EFTA Court 16 November 2018, Case E-8/17, Kristoffersen/NSF, par. 129-133.

[33] Cf. https://www.bundeskartellamt.de/SharedDocs/Meldung/EN/Pressemitteilungen/2017/21_12_2017_DOSB_IOC.html.

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The Kristoffersen ruling: the EFTA Court targets athlete endorsement deals - By Sven Demeulemeester and Niels Verborgh

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