24
DEFINITIONS
Australian Competition and Consumer Commission ACCC
Alphington Junior Football Club AJFC
Alphington Park Junior Football (Soccer) Club APJFC
Baxter Soccer Club Inc BSC
Bentleigh Greens Soccer Club BGSC
Boronia Junior Soccer Club Inc BJSC
Dandenong Thunder Soccer Club DTSC
East Bentleigh Soccer Club Inc EBSC
Eastern Lions Soccer Club ELSC
Football Federation Victoria FFV
Gisborne Junior Soccer Club GJSC
Glen Waverley Junior Soccer Club GWJSC
Keilor Park Soccer Club Inc KPSC
Kingston City Football Club Inc KCFC
Knox City Soccer Club Limited KCSC
Old Carey Soccer Club Incorporated OCSC
Reservoir United Soccer Club RUSC
Sherbrooke Rangers Junior Soccer Club SRJSC
Soccer Football
Southern Suburbs Pythagoras Soccer Club SSPSC
Stonnington City Soccer Club SCSC
Springvale White Eagles Soccer Club SWESC
The Trade Practices Act 1974 The Act
University of Melbourne Women’s Soccer Club UMWSC
Westvale Soccer Club WSC
1. Introduction 1.1 The Australian Competition and Consumer Commission (ACCC) is the
Australian Government agency responsible for administering the Trade Practices Act 1974 (the Act). A key objective of the Act is to prevent anti-competitive arrangements or conduct, thereby encouraging competition and efficiency in business, resulting in greater choice for consumers in price, quality and service.
1.2 Section 47 of the Act describes conduct known as exclusive dealing. Broadly, exclusive dealing involves one trader imposing restrictions on another’s freedom to choose with whom, in what, or where it deals. The Act prohibits exclusive dealing in certain circumstances.
1.3 A common form of exclusive dealing is third line forcing. Third line forcing involves the supply of goods or services on condition that the purchaser also acquires goods or services from a third party. Subsections 47(6) and 47(7) prohibit third line forcing per se, meaning that a breach of the Act can be established regardless of the effect on competition.
1.4 Businesses may obtain immunity for conduct that might risk breaching the third line forcing provisions of the Act by lodging a ‘notification’ with the ACCC in accordance with subsection 93(1). Legal immunity conferred by a third line forcing notification commences 14 days after the notification is validly lodged.
1.5 The ACCC may revoke a third line forcing notification if it is satisfied that the likely benefit to the public from the conduct will not outweigh the likely detriment to the public from the conduct. Revoking a notification removes the immunity conferred by the lodging of the notification.
1.6 Prior to issuing a notice to revoke a notification, the ACCC must issue a draft notice setting out its reasons and providing an opportunity for the notifying party and other interested parties to request a conference in relation to the draft notice.
1.7 This is a draft notice proposing to revoke notification N92852 lodged by Football Federation Victoria Inc. (FFV).
2. The notification 2.1 Notification N92852 was lodged by the FFV on 15 March 2007 for third line
forcing conduct associated with a licensing program (licensing program) for the supply of match apparel.
2.2 At the same time, the FFV lodged notification N92853 in respect of its licensing program for the supply of match balls. The FFV’s program for the supply of match balls is discussed in greater detail in section 8 of this draft notice.
2.3 The FFV governs, administers and regulates soccer/football, hereafter referred to in this draft notice as football, in Victoria. The FFV was formally known as the Victorian Soccer Federation, changing its name in 2005.
2.4 There are over 450 metropolitan clubs that compete under the FFV banner. These clubs range from Senior Men’s and Women’s clubs, Thirds and Masters and a large number of Junior clubs. The clubs compete in 34 different grades, ranging from the Foxtel Premier league, to junior and wheelchair soccer competitions.
2.5 The FFV submits that there are currently 34,063 registered FFV football players. This number is expected to increase to 45,000 in 2008.1
2.6 The licensing program covers shirts, shorts and socks worn during official FFV matches. Under the licensing program, players must wear uniform components bearing the FFV logo in all FFV competition games. The uniform components with the requisite logos are only available from manufacturers that have entered into a licence agreement with the FFV.
2.7 All competitions run by the FFV and its affiliates are bound by the program, including all Victorian regional FFV competitions.
2.8 All clubs must nominate a ‘home’ and ‘alternate’ playing strip. According to the FFV 2007 Rules of Competition no part of the alternative playing strip (shirts, short & socks) is permitted to be the same as the nominated home playing strip.
2.9 The notified conduct may be described as follows:
The Football Federation Victoria Inc (FFV) proposes to require clubs which participate in FFV competitions to use only licensed apparel during FFV Competitions. In the event that licensed apparel is not used in FFV matches, clubs may be expelled, disqualified, suspended, fined, face reprimands, be deducted championship points or face another penalty or remedy deemed appropriate by the FFV.
3. Background
Implementation of the licensing program 3.1 The FFV’s licensing program was originally implemented in 1998. The FFV
submits that the licensing program was developed to ensure that apparel worn by clubs in matches meets a certain minimum standard.
3.2 The FFV submits that clubs in breach of the apparel licensing arrangement may be liable to a fine of up to $1,500 for each breach.
3.3 Further, regulation 18 of the FFV Regulations stipulates that
1 FFV, Form G - N92852, 15 March 2007.
Member Clubs, Clubs or Affiliated organisation, or any member of a member club, club, league, affiliated league or affiliated organisation, player, officer or official of any member club, club, league, affiliated league or affiliated organisation of FFV may be charged with misconduct or with behaviour prejudicial to the interests of the game and the federation.2
The FFV submits that regulation 18 of the FFV Regulations may also be applied to a breach of the apparel licensing arrangements. Regulation 18 provides that the FFV may impose one or more of the following penalties if one of the parties listed breaches the regulations:
expulsion
disqualification
suspension
fines
reprimands
deduction of championship points
bonds or
another penalty or remedy deemed appropriate by the FFV.
Licensed suppliers
3.4 The FFV advises that new license agreements are entered into with manufacturers every three years subject to a tender process. The FFV states that there is no guarantee that an incumbent licensee will submit an application, or win a new licence, at the end of the tender process.
3.5 Currently four apparel manufacturers are licensed under the program for the period 2007 – 2009. The four apparel manufacturers currently licensed under the program are Covo Sports, Nike, Adidas and Kelme. Licensees prior to the entering into of the 2007 – 2009 licence agreements were Covo Sports, Nike, Patrick and Only Sport.
3.6 Football clubs bound by the program submitted that Covo Sports is the only apparel manufacturer which has been appointed and consistently remained a licensee since the programs inception in 1998.
3.7 The FFV advises that the process used to renew or appoint 2007 – 2009 licensees was:
In June 2006 an invitation was issued to apparel manufacturers by mail and posted on the FFV’s website to contact the FFV to obtain an official application form (tender document).
2 FFV Regulations, reg.18, p.27
Official application forms were provided to those manufacturers who contacted the FFV.
Manufacturers submitted application forms along with samples.
Licensees were selected.
Non exclusive license apparel agreements were entered into with successful applicants.
3.8 Licence agreements entered into with licensees are on standard terms. The 2007 – 2009 agreements provide for the licensee to pay the FFV an annual license fee of $10,000, plus GST. Licensees are also required to pay the FFV a royalty of 8% of gross sales with a minimum annual royalty payment of $8,000, plus GST.
3.9 Licensees are also required to provide annually to the FFV licensed product to the (wholesale) value of $2,500. Further, licensees must purchase badges to be affixed to licensed apparel from the FFV at a price of 50 cents per badge.
3.10 Licensees receive one free advertisement per annum on the FFV’s website, displayed on the website for a minimum of 4 weeks. The FFV will also, at the licensees request, include advertising and other promotional material concerning the licensee in a maximum of two mailouts annually to FFV members, affiliated leagues and organisations. The licensee is required to cover all costs of such mailouts, including postage, and provide the relevant advertising material.
3.11 License agreements provide that the licensee must not produce or sell any licensed product unless the product has been approved by the FFV as to quality, design (including but not limited to the identity, appearance, size and positioning of badges and marks), dimensions, materials, fabric and pricing structure.
3.12 The FFV reserves the right to terminate license agreements if the license produces products that, in the FFV’s opinion, are of inferior quality or standard to the samples approved by the FFV.
3.13 Clubs remain free to buy stock from any retailer that stocks licensed apparel. The FFV submits that licensed manufacturers stock a large number of retail outlets around Victoria.
3.14 Where an existing licensee is not reappointed, clubs that have bought uniforms from that licensee must replace them within 12 months with uniforms purchased from one of the newly appointed, or reappointed, licensees.
3.15 The ACCC understands that football clubs typically make bulk orders for uniforms from licensed suppliers.
Enforcement of the licensed apparel requirement
3.16 The licensing program is administered and managed by the FFV’s Commercial Operations Department to ensure that the program is adhered to by clubs.
3.17 Team sheets required to be completed by referees on match days include a section for the referee to report any breaches of the licensing program by clubs. The Commercial Operations Department follows up each report with a letter to the club requesting an explanation for any breach.
3.18 The FFV states that there have only been two instances of breaches of its regulations dealing with licensed apparel which have resulted in penalties being imposed, one of which was overturned on appeal. Specifically, in 2006 a club was fined $1,000 for wearing a non licensed brand. However, the fine was revoked on appeal. In 2004 a club was fined $500 for a goal keeper wearing a non licensed brand.
Financial history of the Licensing Program and distribution of funds
3.19 The FFV submits that the annual average revenue raised by the licensing program from 2003 to 2006 ranged between $91,000 and $147,000.
3.20 The FFV did not provide any details of the costs of administering the licensing program, beyond stating that these costs are negligible. The FFV states that it administers the tender process internally and referees complete a team sheet before each match.
3.21 The FFV submits that the revenue raised by the licensing program is used to help pay for the administration of the FFV and helps keep costs lower for clubs and players.
3.22 The FFV did not provide specific details of how revenue raised by the program is distributed or spent.
4. Statutory test 4.1 Subsection 93(3A) of the Act provides that the ACCC may give notice
removing immunity for conduct described in subsections 47(6) and 47(7) if it is satisfied that the likely benefit to the public from the conduct or proposed conduct will not outweigh the likely detriment to the public from the conduct or proposed conduct.
4.2 Before revoking the immunity obtained by a third line forcing notification, the ACCC must issue a draft notice of its intention (subsection 93A(1)) and give the applicant and interested parties the opportunity to respond and to call a conference in relation to the draft notice (subsection 93A(2)).
5. Submissions received 5.1 In response to a request for submissions, the ACCC received twenty two
submissions in relation to the notified conduct from the following parties:
Only Sport
Baxter Soccer Club Inc (BSC)
Reservoir United Soccer Club (RUSC)
Dandenong Thunder Soccer Club (DTSC)
Southern Suburbs Pythagoras Soccer Club (SSPSC)
University of Melbourne Women’s Soccer Club (UMWSC)
Springvale White Eagles Soccer Club (SWESC)
Westvale Soccer Club (WSC)
East Bentleigh Soccer Club Inc (EBSC)
Boronia Junior Soccer Club Inc (BJSC)
Gisborne Junior Soccer Club (GJSC)
Eastern Lions Soccer Club (ELSC)
Alphington Park Junior Football (Soccer) Club (APJFC)
Kingston City Football Club Inc (KCFC)
Glen Waverley Junior Soccer Club (GWJSC)
Bentleigh Greens Soccer Club (BGSC)
Old Carey Soccer Club Incorporated (OCSC)
Alphington Junior Football Club (APJFC)
Stonnington City Soccer Club (SCSC)
Knox City Soccer Club Limited (KCSC)
Keilor Park Soccer Club Inc (KPSC)
Sherbrooke Rangers Junior Soccer Club (SRJSC)
5.2 The ACCC also received two submissions from interested parties which have been excluded from the public register at the parties request.
5.3 The views of the FFV and interested parties are outlined where relevant in section 6 of this draft notice. Copies of all public submissions and correspondence between the FFV and the ACCC relating to the notification is available on the ACCC’s website <www.accc.gov.au>, by following the links to ‘Public registers’, ‘Authorisations and notifications registers’ and ‘Exclusive dealing notifications register’.
6. ACCC assessment
The relevant markets
6.1 Generally, the first step in assessing the public benefit and public detriment from notified conduct is to consider the relevant market or markets in which that conduct occurs. However, depending on the circumstances, the ACCC may not need to comprehensively define the relevant markets as it may be apparent that a net public benefit will or will not arise regardless of the scope of the defined market.
6.2 The FFV considers that the relevant markets are:
the market between retailers and purchasers of sporting apparel in Victoria and
the market between manufacturers and retailers for sporting apparel in Victoria.
6.3 The FFV submits that the relevant markets are the market for sporting apparel, including football apparel. The FFV contends that football apparel does not constitute a market in its own right.
6.4 The ACCC considers that the relevant markets in this case are the wholesale and retail markets for sporting apparel. In particular, the ACCC notes that there is degree of supply substitutability between the manufacture of football apparel and other sporting apparel.
6.5 While the relevant markets may be broader to include more general apparel and recreational uniforms, the ACCC does not consider that its assessment of the notified arrangements is overly affected by the possible variations in market definition.
Counterfactual
6.6 In order to identify and measure the public benefit and public detriment generated by the notified conduct, the ACCC applies the ‘future-with-and-without test’. This involves identifying a counterfactual; that is, the ACCC makes a judgement as to what, on the information and evidence before it, is the most likely situation in the absence of the immunity accorded by the notification.
6.7 The ACCC then compares the public benefit and public detriment arising in the future if the notification is not revoked with the public benefit and detriment arising under the counterfactual.
6.8 While the FFV has been operating its apparel licensing program for almost 10 years absent the immunity afforded by the notification, it has presumably be doing so unaware of the potential concerns under the Act which the program, as currently structured, could raise. Given these concerns, which are summarised in paragraphs 1.2 and 1.3 of this draft notice, the ACCC considers that the most likely counterfactual in the absence of the immunity accorded by the notification is that the FFV would not continue to require its clubs to use only licensed apparel supplied by third parties in FFV competitions.
6.9 This is not to say that some elements of the arrangements could not or would not continue. For example, the FFV could continue to require that shirts and shorts be branded with its logo.
6.10 Further, the FFV could continue to impose minimum standards of quality of uniforms worm by clubs, without requiring that uniforms be purchased from a limited list of approved licensees.
6.11 It would also be open to the FFV, for example, to continue a licensing arrangement for suppliers of FFV branded apparel without requiring that clubs acquire products from these suppliers. The ACCC notes that the Act does not prevent arrangements where consumers still have the choice whether to acquire from licensed or other suppliers.
Public detriment
6.12 Potential public detriment from licensing programs, such as the FFV’s Licensing Program, could results from:
(a) distortions to prices associated with the royalty payments made by licensed suppliers
(b) wastage of apparel as a result of the requirement that clubs replace uniforms purchased from licensees within one year if the licensees license is not renewed
(c) distortions in prices associated with reduced competition as a result of restrictions on supply and
(d) any administration costs, whether borne by the scheme or absorbed by other bodies.
Royalty payments
6.13 As noted, licensed suppliers pay an annual fee of $10,000 and a royalty of 8% of gross sales (with a minimum royalty of $8,000 per annum) to the FFV to participate in the licensing program.
6.14 The ACCC considers that the licensing program royalties are a direct cost to licensed football uniform suppliers. Only Sport submits that the need to recoup the licence fees and associated administration cost will inevitably lead to higher cost of apparel. The ACCC considers the effect of royalty payments is that either the cost will be fully reflected in the prices of licensed goods, or the cost will be reflected in part in the prices of licensed goods and the licensee will absorb the remainder. If a licensee absorbs its royalty payments, this may be reflected in other areas of the licensee’s business.
6.15 In either case, the ACCC considers that the entire amount of licence fees and royalty payments made by licensed suppliers (in the range of $91,000 to $147,000 per annum) is likely to constitute an additional supply cost and as such a detriment to the public.
6.16 The FFV submits that even though the licensees pay a licence fee and royalty under the licensing program, this has not resulted in an increased cost to the clubs or players for apparel.
6.17 While this may be the case, there does not need to be evidence of an increase in prices since the programs inception. What is important is the price of apparel to clubs under the program versus the price for comparable, or indeed identical, apparel without the program. In this respect, the licence fee and royalty payments are costs arising from the program which would not otherwise be incurred. They are costs to suppliers, and are likely to ultimately be reflected in the prices and/or quality of their goods and services.
6.18 The ACCC considers that these costs to be a public detriment that must be weighed against any public benefits flowing from the program
Wastage of apparel
6.19 Generally, particularly in recent years, licensees have been appointed for three year periods, with four licensees appointed for each three year period. At the end of each license period a fresh tender process is run. The result of the tender process to supply licensed apparel for the period 2007 – 2009 was that only two of the four existing licensees were reappointed.
6.20 The FFV regulations provide that where an existing licensee is not reappointed, clubs that have bought uniforms from that licensee must replace them within 12 months with uniforms purchased from one of the newly appointed, or reappointed, licensees.
6.21 The FFV submits that it imposes this requirement to enhance the value of the license to licensees. The FFV also submits that absent this requirement clubs would be tempted to continue purchasing apparel from previously licensed manufacturers indefinitely.
6.22 The FFV submits that it understands that clubs generally change their apparel every one to two years to display new sponsors logo. Many, particularly
junior, clubs submit that the useful life of uniforms is typically much longer than two years.
6.23 BSC submits that the reduction in the grace period, which was previously two years, imposes an unacceptable cost burden on a club. Clubs also note that the consequence of this requirement is that in effect, apparel manufactured by licensed suppliers is automatically deemed to be unsuitable for use in FFV competitions 12 months after the termination of a licensee’s contract, regardless of its state.
6.24 More generally, clubs raised concerns about the cost of having to replace uniforms unnecessarily if their existing suppliers license is not renewed. Some clubs estimated the cost of doing so, given that they field up to 30 or 40 teams, at in the vicinity of $10,000 to $20,000. Clubs state that they have no choice but to pass these costs on in the form of higher registration fees for players.
6.25 Clubs also expressed concerns that they have no means of avoiding this risk due to the uncertainty as to which apparel providers will be licensed from one licence period to the next. Some clubs state that they have been forced to change suppliers three times since the programs inception (requiring potentially unnecessary replacement of all the clubs uniforms each time) due to changes in suppliers licensed under the program.
6.26 Clubs note that some tops have had to be replaced having only been worn 30 or 40 times (home strip) or a handful of times (away strip).
6.27 The ACCC notes the varying views expressed as to how often apparel is replaced. It may be the case that some teams in senior or more high profile FFV competitions replace their uniforms regularly to accommodate sponsors. However, this is less likely to be the case where clubs sponsorship arrangements have not changed.
6.28 More generally, in lower and junior grade which make up the majority of FFV competitions, consideration of sponsorship arrangements is likely to be less of an issue and decisions as to the replacement of apparel are more likely to be made on the basis of the useful life of the apparel.
6.29 In this respect, the ACCC notes the submissions of clubs that shirts and shorts have a wearable life of four years or more. Indeed, in respect of away strips, which are often used only infrequently, the useful life of apparel could be considerably longer.
6.30 The ACCC notes that Covo Sports has been granted licences every time the licence agreements have renewed since 1998. In theory, this means that clubs that originally purchased apparel manufactured by Covo Sports in 1998 are still able to wear these garments, while those clubs that purchased new apparel from Only Sports or Patrick at the beginning of the 2006 season will only be able to wear them for the remainder of the 2007 season.
6.31 The ACCC understands that it is important for the FFV to maintain an attractive image, and this is in part reflected through the presentation of players in its various competitions. However, the ACCC considers that the requirement that clubs purchase new uniforms within 12 months of their existing suppliers license to supply expiring creates considerable additional unnecessary costs for affected clubs. At the extreme, an away strip may have to be replaced after having been used on only a handful of occasions.
6.32 This inefficient spending by clubs, by diverting funds from alternative uses such as the development of facilities and reduced player registration fees has the potential to adversely effect players, clubs, and as a result the FFV as a whole.
6.33 The ACCC notes the FFV’s contention that absent the requirement to replace uniforms, clubs may be tempted to continue purchasing apparel from previously licensed manufacturers indefinitely. The ACCC fails to see how this would be the case given the licensing program, the manner in which it is implemented and the penalties provided for purchasing apparel from unlicensed suppliers.
6.34 Further, given that the FFV controls the supply of badges that are required to be attached to shirts and shorts, it is difficult to see how unlicensed manufacturers could continue to offer apparel to clubs.
6.35 The FFV may have meant that absent the requirement to replace uniforms, clubs may be tempted to continue to use previously purchased uniforms indefinitely. The FFV’s argument demonstrates the detriment identified by clubs. That is that the licensing program may be distorting a clubs decision as to when it should replace uniforms.
6.36 The ACCC notes that a club that purchases uniforms from a supplier whose license is renewed would have the same incentives. As noted, a club that purchased apparel from Covo Sports 9 years ago is still able to use that apparel.
6.37 On the other hand, the requirement to replace uniforms will in some case encourage, rather than discourage, clubs to continue to use apparel beyond its useful life. For example, in circumstances where a club would ordinarily replace their uniforms in the second or third year of a licensing agreement, they may instead choose not to replace their uniforms until new license agreements are entered into for fear that if their suppliers license is not renewed they will have to replace their uniforms a second time within 12 to 24 months.
6.38 As noted above, absent the licensed arrangements, the FFV could continue to maintain standards by ensuring uniforms worn meet quality and/or presentation standards.
6.39 In conclusion, the ACCC considers that the requirement that clubs replace uniforms purchased from licensees within one year if the licensees license is not renewed generates significant public detriment. At the extreme, it could
require clubs to unnecessarily replace recently purchased, and in some cases rarely used, uniforms of good quality simply as a means of generating additional revenue for the FFV and its licensees.
6.40 The ACCC does accept the FFV’s contention that this requirement enhances the value of the license to licensees. This is discussed in greater detail in the ACCC’s assessment of the public benefits generated by the arrangements.
Reduced competition
6.41 The FFV submits that the possibility of detriment to the public from the licensing program is decreased because there are no restrictions on the number of licensees.
6.42 However, the ACCC understands that since the programs inception, there have only ever been four licensed apparel manufacturers at any one time. The tender application forms in respect of the most recent license period also envisaged the appointment of four licensees and four were ultimately appointed. In addition, as submitted by the FFV, the greater the degree of exclusivity for the licensee, the greater value that licensee will place on obtaining licensing rights. Therefore the ACCC does not place any weight on the FFV’s submission that the absence of restrictions on the number of licensees mitigates the potential affects on competition of the arrangements. In practice, the number of licensees is restricted, generally to a maximum of four.
6.43 The FFV also submits that the benefits of the licence program have been achieved whilst retaining a high level of choice for clubs. The FFV states that the four licensed manufacturers produce a large range in style, materials, price and colours. In particular the FFV states that quality of the licensed apparel varies between the licensed manufacturers providing the clubs a different price range for licensed apparel.
6.44 However, interested parties contend that four licensed apparel manufacturers does not amount to a ‘high level of choice’ as claimed by the FFV. BJSC states that the limit of four suppliers does not constitute a high level of choice when the market is looked at more broadly. BJSC contends that there are many suppliers that offer similar, if not better, quality products for the same price or less than those available under the scheme.
6.45 EBSC submits that prior to the licensing programs inception, clubs were able to bargain with sporting apparel retailers and manufacturers. Following the introduction of this program, and the restriction of licensed apparel manufacturers to four, EBSC contends that clubs are no longer in a position to do this.
6.46 BJSC contends that there is little, if any incentive for licensees to reduce their prices to compete for the market available as they are already assured that they will receive a certain level of business as a result of the licence agreements and the rules and regulations of the FFV.
6.47 As noted, the licensing program places a restriction on the number of suppliers from which football clubs and players may choose to acquire competition uniforms. Where potential suppliers are unable to supply clubs with goods because of the licensing program, competition is reduced, which may cause prices to be higher, quality to be lower and/or service to be poorer than in the situation without the licensing program.
6.48 Manufacturers do compete to become licensed suppliers through the tender process every three years. One of the factors the FFV takes into account in appointing licensees is the quality of apparel manufactured. In this respect, the FFV submits that it appoints manufacturers producing a range of styles, materials, colours and prices. However, prospective licensees are not required to prove information regarding prices of apparel they will supply clubs as part of the tender process. Although, license agreements do provide that the licensee must not produce or sell any licensed product unless the FFV has approved the products pricing structure.
6.49 Further, the cost of license agreements, a $10,000 fee plus royalties of 8% of gross sales (minimum $8,000), may also favour higher priced suppliers who are more readily able to recoup these costs.
6.50 While, as a general proposition it may be that higher prices (beyond that necessary to recovery of fees and royalty payments) may be a function of the superior quality of apparel produced, clubs choice as to the range of quality and prices of apparel is still reduced by the arrangements.
6.51 Appointing four suppliers for each period also provides for a degree of ongoing competition for the supply of apparel during the life of licensing agreements, albeit a reduce level of competition from that which would prevail absent the arrangements. In this respect, the ACCC notes the concerns of some clubs as to the range of apparel offered, both in terms of price and quality, under the licensing program.
6.52 Further, while the ACCC did not receive submissions on this issue, it may be that the nature of the licensing agreements, being three years in duration with no guarantee of renewal, forecloses the possibility of clubs entering into long term relationships with preferred suppliers, even where they are (currently) licensed suppliers.
6.53 In summary, restrictions such as those placed on the suppliers from which clubs and players may choose to acquire competition uniforms invariably lessen competition and create inefficiencies, ultimately resulting in higher costs to consumers and a dead weight loss to society. Although, the appointment of four suppliers, following a competitive tender process, lessens the anti-competitive effect of the program.
6.54 The costs of participating in the licensing program, along with the general restriction on the number of licensees may also constitute a barrier to entry to the market which results in fewer suppliers of apparel than might otherwise be the case. In addition, the arrangements prevent apparel manufacturers already in the market, other than licensed suppliers, supplying clubs.
6.55 However, the ACCC does not consider that the impact of the notified arrangements on competition for the more general supply of these goods (that is, for supply other than to FFV clubs) is significant, given the small number of potential customers, relative to the overall size of the market, to which access is restricted by the arrangements.
Administration costs
6.56 In addition to the royalty payments and the effect on competition, the FFV’s licensing program also imposes administrative costs on the FFV.
6.57 The FFV submits that the administrative costs of the licence program are negligible. In particular, the FFV submits that it administers the tender process internally and that referees check on compliance at matches.
6.58 While the tender process is administered internally by the FFV, such that its cost is absorbed in the FFV’s day to day administrative costs, that is not to say that administering the process does not in itself generate costs. While the FFV has not provided any details of these costs, other than to state that they are negligible, it is difficult to envisage how such a tender process could be administered without some costs to the FFV.
6.59 The ACCC considers that these costs, whatever their quantum, to be a public detriment that must be weighed against any public benefits flowing from the program.
6.60 The ACCC also considers that the licensing program imposes a cost on licensees in addition to royalty payments. For example, the administration costs associated with entering into and complying with the licence agreement and the cost, for both successful and unsuccessful manufacturers, of tendering to become an approved licensee. While the ACCC has not received any information to suggest that these costs are significant, they are none the less costs that would not be incurred absent the licensing program and which therefore need to be weighed against any benefit generated by the program.
6.61 The ACCC accepts that the general costs of ensuring compliance with the program on match days are unlikely to be significant, involving no more, in most instances, than match referees checking uniforms and filling out an additional section on team sheets. Further, the ACCC accepts that this cost is likely to still be incurred, absent the notified conduct, if referees were still required to check players uniforms.
Public benefits
6.62 The public benefits claimed by the FFV are:
(a) a minimum standard of quality will be achieved
(b) timely supply of apparel will be guaranteed
(c) the image of the game will be kept to a high standard
(d) the FFV brand will be protected and promoted and
(e) income will be generated for the FFV.
Minimum standard of quality
6.63 The FFV submits that the tendering process for the licence program ensures that there is a minimum standard of quality for licensed apparel. The FFV is of the view that the minimum standard of quality arising from the licence program results in clubs saving money in the long term due to the greater durability and quality of the licensed apparel.
6.64 The FFV submits that prior to the licence programs inception it was aware of incidents where apparel did not last the whole season resulting in clubs being required to acquire new apparel the following season. The FFV states that clubs are able to acquire unlicensed apparel at a lower cost, but that the unlicensed apparel that is available at a lower cost is likely to be of an inferior quality to the licensed apparel.
6.65 Interested party submissions contend that there is no specialised knowledge needed for purchasing a set of uniform apparel beyond the normal capacity to buy clothing. Further, many interested parties dispute the assertion by the FFV that the licensing program ensures better quality apparel than would be the case without the program. Clubs also state that they have previously purchased good quality items from different manufacturers and/or suppliers, and that they have been able to do so at a more competitive price.
6.66 Some clubs further contend that some of the lower cost apparel available in the market, which the FFV submits is of inferior quality to licensed apparel, was previously licensed by the FFV. Clubs also state that, to the extent the licensing arrangements do ensure the quality of apparel worn by them, this comes at significant cost to the clubs.
6.67 The ACCC accepts that the licensing program in is likely to assist in ensuring that apparel worn by clubs conforms with minimum standards of quality. Specifically, the license agreements provide that the licensee must not produce or sell any licensed product unless the product has been approved by the FFV as to quality, design, dimensions, materials, fabric and pricing structure.
6.68 However, as noted by some clubs, the FFV, through the setting of a minimum standard of quality, is assuming that that clubs are unable to assess
their own needs. It may be that the licensing program results in higher quality apparel being worn by clubs than may otherwise be the case, however, it is not necessarily the case that the standards imposed by the FFV are necessary or desirable, particularly as they come at a cost.
6.69 While it may be in the interest of the FFV and its clubs collectively that uniforms worn by clubs in high profile competitions are of a high standard, whether there is a benefit in the FFV imposing the same standards on teams in lower grades or junior competitions is more open to question. It could be expected, in respect of these competitions, that individual clubs would be well placed to assess the needs of the teams they field.
6.70 The ACCC also notes the FFV’s argument that minimum standard of quality arising from the licence program result in clubs saving money in the long term due to the greater durability of the licensed apparel. To the extent that the licensing program does ensure clubs purchase more durable uniforms, this durability is of little use if the supplier from whom a club purchases uniforms does not have its license renewed, thereby forcing club to replace their uniforms within 12 months of the suppliers license not being renewed, irrespective of their durability.
6.71 However, as noted, more generally the ACCC accepts that the licensing program does assist in ensuring the standard and quality of apparel worn by teams competing in FFV competitions. The ACCC also accepts that ensuring such standards does, in many instances, generate a public benefit by enhancing the overall image of FFV competitions and presentation of matches.
6.72 The benefit in the FFV imposing standards of apparel worn through requiring that apparel only be purchased from licensed suppliers is likely to be less with respect to less high profile and more junior competitions. In respect of these competitions it could be expect that a more broad, general set of standards would be sufficient to ensure that teams maintained reasonable standards of apparel.
Timely supply of apparel
6.73 The FFV submits that restricting apparel manufacturers to four (and therefore increasing the volume sold by each manufacturer), together with the staggered beginning to the football season for different levels of competition will allow manufacturers to plan ahead to meet club’s demands on volume and timing of supply. The FFV claims that this in turn allows manufacturers to keep prices low.
6.74 Further, the FFV contends that before the licence program started clubs often complained of long delays in the delivery and supply of apparel. The FFV states that it is aware of numerous incidents arising prior to the commencement of the licence program where apparel was not delivered by manufacturers to clubs prior to the commencement of the competition season. The FFV states that this resulted in significant inconvenience to
clubs and the players. The FFV argues that this problem has been alleviated following the introduction of the licence program.
6.75 Some interested parties submit that the licensing program, and namely the restriction of the number of manufacturers to four, has in fact created issues for the clubs regarding the timeliness of supply. Clubs claim that following the restriction on the number of manufacturers it has been a difficult and frustrating process to try and organise apparel in time for the commencement of the season.
6.76 In response the FFV notes that prospective licensees must indicate their lead times and distribution methods in the tender process and that this is one of the criteria considered in awarding licenses. However, standards are not set for the timely supply of balls and apparel in the license agreement.
6.77 To the extent that timely supply of apparel would otherwise be a problem, the ACCC considers the degree to which the licensing program addresses this problem would be a public benefit.
6.78 However, based on the conflicting information provided by the FFV and clubs it is difficult to assess to what extent that licensing program does assist in ensuring timeliness of supply.
6.79 On the one hand, limiting the number of manufactures licensed to produce apparel may provide for economies of scale in production which would assist in ensuring timely supply.
6.80 Alternatively, limiting the number of manufacturers licensed to produce apparel for the FFV’s 450 clubs to four could also result in production bottlenecks.
6.81 Based on the conflicting information provided by the FFV and clubs to date, the ACCC is not in a position to conclude whether the licensing program does assist in ensuring timely supply of apparel. Given the assertions of clubs that it does not, the ACCC does not place significant weight on the timely supply of apparel as a public benefit resulting from the licensing program, particularly given that the FFV did not address this issue in any detail in its submission in response to the concerns raised by clubs.
6.82 The ACCC would welcome any further information the FFV or clubs may wish to provide in relation to this issue.
Image of the game
6.83 The FFV contends that ensuring quality and the timeliness of supply of apparel will help to lift the profile of football which will in turn will help attract players, spectators and sponsorship and will reduce the amount clubs need to pay to participate in FFV competitions.
6.84 The FFV further submits that some sponsors may be more likely to be attracted to sponsor a team that is fitted out with a high quality product rather than a low quality product.
6.85 BJSC questions the FFV’s assertion that sponsors are attracted by the quality of garment their name is being placed on. Further, interested parties argue that sponsors are interested in the potential market exposure gained from sponsoring a FFV team, rather than the brand the teams are wearing.
6.86 The ACCC notes that, to the extent that the quality of a clubs uniforms assists in attracting sponsorship, clubs could be expected to take account of this in purchasing uniforms irrespective of the licensing program. That is, clubs will purchase higher quality apparel than would otherwise be the case if the additional sponsorship revenue generated by doing so is greater than the additional cost of the apparel.
6.87 More generally, the ACCC considers that initiatives which lift the profile of football, thereby attracting player, spectators and sponsorship constitute a public benefit. While, the ACCC accepts that ensuring the quality of apparel worn by players is one such initiative, it does not place a great amount of weight on this argument. The ACCC considers that there are many other factors that impact far more significantly on the image of the game, such as success in high profile international events such as the world cup and the increasing market share held by football as its popularity increases. Factors such as the quality of uniforms worn by players in FFV competitions are more likely to complement other initiatives rather than have a significant direct influence on the success of football, or FFV competitions.
6.88 As noted with respect to the FFV’s arguments regarding minimum standards of quality of apparel, while there may be some benefit in ensuring that uniforms worn by clubs in high profile competitions are of a high quality, whether there is a benefit in the FFV imposing the same standards on teams in lower grades or junior competitions is more open to questions.
6.89 Further, to the extent that there is a public benefit in ensuring the quality of apparel worn by clubs in FFV competitions this has, to a large extent, been considered in the ACCC’s assessment of the FFV’s public benefit arguments with respect to minimum standard of quality and timely supply of apparel.
Income generated for the FFV
6.90 The FFV submits that revenue generated by the licensing program helps keep costs lower for clubs and players.
6.91 The FFV submits that there is a direct correlation between the value of a licensing arrangement to a licensee and the degree of exclusivity provided to that licensee. The greater the degree of exclusivity for the licensee, the greater value that licensee will place on obtaining licensing rights. The FFV contends that in order to maximise the value of licensing arrangements to both licensees and the FFV, it is essential for the FFV to be able to guarantee to licensees that their products will be used exclusively.
6.92 Revenue raised by the program over the period 2003 to 2006 has ranged between $91,000 and $147,000 per annum. The FFV did not provide any
details of how this revenue has been spent, other than to note that it is used to help pay for the administration of the FFV.
6.93 To the extent that revenue raised by the program is used by the FFV to promote, foster and develop the sport of football in Victoria through its administration of the competition conducted under its auspices, the ACCC considers this to be a public benefit. Specifically, it may increase participation in the sport, fostering community fitness and recreation.
6.94 The ACCC also accepts that these benefit are likely to increase, the greater the volume of revenue raised by the program. The exclusivity of the license agreements assists in maximising this revenue.
6.95 However, as noted in the ACCC’s consideration of the public detriment generate by the program, this benefit is achieved at a direct cost to the clubs.
Promote and protect FFV brand
6.96 The FFV submits that quality, consistency and supply of licensed apparel helps to protect the value in and promote the FFV brand. The FFV argues that this is turn helps maximise licensing revenue and reduces the amount football players need to pay to participate in the sport.
6.97 The FFV submits that in order to protect the intellectual property right the FFV has, it is vital that the FFV is able to determine, in its discretion, the manufacturers it considers to be best qualified to apply the FFV’s marks to the apparel.
6.98 The ACCC considers that this is essentially a restatement of other public benefit arguments submitted by the FFV. Any public benefits generated by the licensing program assisting in promoting the FFV brand or from revenue raised by the licensing program are discussed above.
Balance of public benefits and detriments
6.99 Revenue raised by the FFV’s licensing program is able to be used to foster, promote and develop the sport of football in Victoria. This serves to increase participation in the sport, fostering community fitness and recreation, which the ACCC considers to be a public benefit.
6.100 However, revenue raised by the program is directly offset by the costs incurred, by clubs to the extent that license and royalty fees are reflected in the cost of apparel purchased, and by licensees, to the extent that they absorb these costs themselves. Essentially, revenue raised by the program constitutes a wealth transfer from the clubs and licensees to the FFV.
6.101 Further, the costs of administering the program, whatever their quantum, necessarily means that the licensing program returns less money to the sport than the amount raised by it (the corresponding detriment).
6.102 In addition, the requirement that clubs replace uniforms purchased from licensees within one year if the licensees license is not renewed generates
significant public detriment. It could, in some cases, require clubs to replace perfectly good uniforms within 12 to 18 months of purchase, even though the supplier was licensed by the FFV at the time the uniforms were purchased. This could create considerable waste for clubs.
6.103 Moreover, restriction such as those placed on the suppliers from which clubs and players may choose to acquire competition uniforms invariably lessen competition and create inefficiencies, ultimately resulting in higher costs to consumers and a dead weight loss to society. Although, the appointment of four suppliers, following a competitive tender process, lessens the anti-competitive effect of the restriction in this instance.
6.104 A number of clubs submitted that, when aggregated, these costs impact significantly on their ability to provide services to their players and necessitate the imposition of higher player registration fees for the provision of services. Clubs submit that this impacts on the number of players participating in the sport of football and potentially jeopardises the viability of some clubs.
6.105 The licensing program does assist in ensuring the quality of apparel worn by FFV clubs, enhancing the overall image of FFV competitions and presentation of matches. However, absent the program it could be expected that clubs, in most instances, would similarly, act to ensure the quality of apparel worn by them. Further, as noted, using the licensing program as a mechanism to ensure the quality of apparel comes at considerable cost to clubs.
6.106 On balance, the ACCC considers that the likely benefit to the public from the notified conduct will not outweigh the likely detriment.
6.107 The ACCC accepts the need for sporting associations, and particularly sporting associations such as the FFV with many junior and non professional senior competitions, to raise much of the funding to finance their activities from their member clubs and players. However, there are other means of raising such funds which are more efficient, transparent and less costly than the licensing program.
6.108 The FFV states that revenue raised by the licensing program keeps costs lower for players and clubs. However, given that much of the cost of the licensing program is ultimately likely to be reflected in prices paid by clubs for apparel, it is in effect, another form of levy on clubs and players. Although it differs from registration fees paid directly by clubs in that it is an indirect, hidden levy.
6.109 In this respect, it was submitted that it would be cheaper for clubs to pay the FFV an amount equivalent to the revenue raised by the licensing program directly, thereby avoiding the other additional costs the licensing program imposes on them.
6.110 More generally, the ACCC does not object to sporting organisations seeking to raise revenue through licensing programs. The ACCC’s primary concern
with the FFV’s licensing program is that it forces clubs and players to acquire products from a limited range of third party suppliers, thereby restricting choice in terms of price, quality and service.
6.111 This draft notice is not an indication that the ACCC considers all such programs likely to generate a net public detriment. Revenue raising schemes that do not result in comparatively higher prices, reduced competition, restricted consumer choice and costs associated with the unnecessary replacement of apparel and that simultaneously generate clear public benefits, may be in the public interest.
7. Draft notice 7.1 For the reasons outlined in this draft notice, the ACCC is satisfied that the
likely benefit to the public from the FFV’s licensing program will not outweigh the likely detriment to the public.
7.2 Accordingly, the ACCC proposes to issue a notice under section 93(3A) of the Act to revoke the immunity afforded by notification N92852. Such a notice would remove the immunity provided by the notification 31 days after the date it is issued.
7.3 The ACCC will now seek further submissions from interested parties. In addition, the FFV or any interested party may request that the ACCC hold a conference in relation to this draft notice, in accordance with section 93A of the Act.
8. N92853 – Ball Licensing Program 8.1 In conjunction with its notification in respect of its apparel licensing program
N92852 the FFV lodged notification N92853 regarding its match ball licensing program. The ball licensing program requires all clubs participating in FFV competitions to use only licensed balls in FFV Competitions.
8.2 The ball licensing program functions in a similar way to the apparel licensing program. Clubs are required to purchase and use balls manufactured by one of four appointed licensees.
8.3 The current ball licensees are:
Mitre
Patrick
Nike
Spartan
8.4 Prospective licensees are selected after an open tender process run by the FFV. As with the apparel license agreements the ball license agreements run for 3 years.
8.5 The ACCC is not proposing to revoke notification N92853 at this time on the basis that it is not satisfied that the likely benefit to the public from the FFV’s match ball licensing program will not outweigh the likely detriment to the public.
8.6 As with any notification the ACCC may act to remove the immunity afforded by this notification at a later stage if it is satisfied that the likely benefit to the public from the conduct will not outweigh the likely detriment to the public from the conduct.
8.7 The ACCC is of the view that the ball licensing program is distinguishable from the apparel licensing program for the following reasons:
The fees associated with the ball licensing program are lower than the apparel licensing program. The FFV receives a flat annual fee of $6000 from each license, and licenses are not required to pay royalties based on sales.
Unlike the apparel licensing program clubs are not given a grace period to continue using balls from an existing supplier if their license is not renewed. However, the ball licensing program does not create the same concerns regarding wastage of stock as the apparel program. While clubs cannot use balls for FFV competitions once the suppliers license expires they are still able to use the balls for non FFV sanctioned practice matches and training. Further, the useful life of a football, as a match ball, is far shorter than is the case for apparel. Consequently, clubs are less likely to have large stockpiles of balls which they are unable to use if a suppliers license is not renewed. Particularly as clubs are aware of the requirements of the program when purchasing balls.
Unlike apparel, the choice of match ball could potentially impact on a football match. Arguably, it is therefore more important that balls are not only of a high quality, but that the use of balls across competing teams is somewhat standardised.
8.8 The ACCC also notes that the concerns expressed by clubs with respect to the ball licensing program were far more limited than with respect to the apparel licensing program.
