Irish Competition Authority Decisions

1. This decision concerns a sponsorship agreement dated 1 June 1990 between Adidas (Ireland) Limited (Adidas) and Cumann Peile na hEireann "Football Association of Ireland" (FAI) which was notified to the Authority on 30 September, 1992. The notification requested a certificate under Section 4(4) of the Competition Act, 1991 or, in the event of a refusal by the Competition Authority to grant a certificate, a licence under Section 4 (2).

2. The notification concerns an agreement dated 1 June 1990 between Adidas and the FAI. Under the terms of the agreement Adidas were given exclusive rights to supply defined items of sportswear to the FAI for use by their teams in international soccer matches for a period of four years. In addition Adidas were given exclusive rights to market the sportswear using the official FAI crest for a similar period of four years and to use the crest on other sportswear produced by them for a like period.

3. Adidas is engaged in the production and marketing of sports goods including equipment, clothing and footwear. It is a subsidiary of Adidas AG. The FAI is the governing body for all soccer in the State. Its activities include the organisation and control of the National League and of international games at various age levels. It is an unincorporated body with 3,500 member clubs.

4. The arrangements involve the supply and marketing of sportswear. The sportswear is defined in clause 1.8 of the agreement as the latest approved jerseys, shorts, stockings, training bibs, leisure wear, tracksuits and balls manufactured by the company containing the Adidas trade mark and the FAI crest. The relevant market therefore is that for such sportswear, specifically football shirts, kits, track suits and footballs. There are a number of suppliers of such products, most of them located outside the State. In many cases the suppliers have similar agreements in respect of football kits with other international associations and individual football clubs. Suppliers would also have similar arrangements with other sports bodies. Adidas estimated that there are many hundreds of buyers of such products at retail level within the State. They estimated that the total market turnover was [ ].

5. The notified arrangements involve an agreement between Adidas and the FAI whereby the FAI grants to Adidas the exclusive right to supply it with sportswear for all of its international teams (clause 1) and to market replicas of that sportswear and other sportswear using the official FAI crest (clause 2) for a period of four years. In return under clause 3 Adidas agrees to pay the FAI a minimum amount in 16 quarterly instalments and to pay additional royalties at a rate of [10%] of the wholesale price (excluding VAT) in the event of sales of the products exceeding a certain amount. Additional payments were to be made in the event of the team qualifying for the final series of the European Championships or the World Cup. The FAI agreed to secure that all team members and officials of the Association would wear the sportswear at all fixtures and in training sessions and secure the use of Adidas footballs for home fixtures. (Clause 4)

6. Under clause 7 the FAI could require Adidas to brand the team jersey with the trade mark or other logo of one other corporate sponsor provided that such trade mark or logos would not interfere with those of Adidas.

(e) Submissions by the Parties

7. Adidas advanced a number of arguments in support of their request for a certificate. They claimed, for example, that the agreement did not so much prevent, restrict or distort competition as facilitate the establishment of efficient competitors in the relevant market to stimulate further competition. They stated that there were a high number of competitors in both the supply and the demand market and this number would not be significantly reduced as a result of the agreement. In addition Adidas claimed that the agreement allowed for the creation and maintenance of competitors in the market as it did not restrict sports federations or sportsmen from using other crests. A number of arguments were also advanced in support of the request for a licence but these are not considered here.

8. Section 4 (1) of the Competition Act, 1991, prohibits and renders void all agreements between undertakings which have as their object or effect the prevention, restriction or distortion of competition in trade in any goods or services in the State or in any part of the State.

9. Section 3(1) of the Competition Act defines an undertaking as ´a person being an individual, a body corporate or an unincorporated body of persons engaged for gain in the production, supply or distribution of goods or the provision of a service.' Adidas is engaged for gain in the production and distribution of sportswear and is therefore an undertaking. The FAI, an unincorporated body, is engaged for gain in the administration and promotion of football matches. It is therefore also an undertaking. The notified arrangements constitute an agreement between undertakings. The relevant geographic market is the State.

10. In their arguments for a certificate Adidas have not, in the Authority's view, addressed the main issues involved. From a competition perspective there are two aspects of the arrangements which must be considered, although both are closely intertwined. Under the terms of the agreement the FAI gave Adidas an exclusive right to supply it with sportswear for use by its teams for a period of four years. In addition the FAI gave Adidas the exclusive right to market such sportswear to the general public using its official crest and to use the crest on other sportswear for a like period.

11. The exclusive right to supply sportswear to the FAI for use by its teams is, in some respects, akin to an exclusive purchase arrangement not involving goods for resale. It is the supplier, however, who pays the user for the exclusive right to supply in this instance. This is because, from the supplier's perspective, the arrangements represent a useful means of promoting its products. In effect the supplier is sponsoring the user and in return the user agrees to use only the supplier's sportswear. The arrangements precluded the FAI, for the duration of the agreement, from entering into a similar arrangement with an alternative sportswear supplier. It also prevented other suppliers from supplying sportswear to the FAI for use by its teams as a means of promoting their products. The net issue is whether, by denying other suppliers the right to promote their products by supplying them to the FAI, such an agreement prevented, restricted or distorted competition. In the Authority's opinion it did not do so. Of course Adidas benefited from the fact that what it was selling was a reproduction of the kit worn by the international team. The marketing benefits of supplying the team applied not only to Adidas sportswear in general but to that particular design, demand for which was undoubtedly enhanced as a result of its being worn by the team. While the success of the Irish international soccer team in recent years meant that it represented an attractive means for a sportswear manufacturer to promote its goods, it is by no means the only way of doing so. Indeed there are many other teams and individuals that other sportswear manufacturers can enter into similar agreements with. These include the IRFU, the GAA, individuals and individual soccer clubs in Britain, since games involving such clubs are widely televised in this country. As the notified arrangements were limited in time, competition between suppliers to secure rights to supply the FAI occurs at regular intervals, when any sportswear manufacturer who chooses to do so, may effectively bid for such rights. It is relevant that following the expiry of this agreement the FAI have switched to another sportswear supplier.

12. Adidas also had an exclusive right to market replicas of the sportswear which it provided to the Irish international soccer team and to include the official FAI crest on these and other products. The arrangements did not, however, prevent Adidas from producing and marketing other sportswear, including other replica soccer kits. The sportswear itself consisted of articles of clothing together with footballs designed and produced by Adidas and bearing its trademarks. To the extent that the agreement gave Adidas an exclusive right to market such goods it did not have any anti-competitive effect. As noted, the demand for the particular design is boosted by virtue of the fact that it was the official team kit. Nevertheless other suppliers were not prevented from entering the sportswear market by virtue of this agreement. They were not prevented from producing soccer shirts, for example, only a particular style of soccer shirt carrying the official FAI crest. The Authority does not, however, believe that that can be considered to prevent, restrict or distort competition. Adidas undoubtedly secured some competitive advantage over its rivals as a result of the arrangement. It is, however, an essential feature of competition that firms will attempt to gain some edge over their competitors. That is fundamental to the competitive process. It is only where they could be shown to prevent other suppliers from entering the sportswear market that such arrangements could be deemed anti-competitive. The Authority therefore concludes that giving Adidas an exclusive right to market the sportswear and other sportswear using the official FAI crest did not prevent, restrict or distort competition.

13. None of the provisions in the notified terms and conditions offended against section 4(1).

14. In the Authority's opinion Adidas (Ireland) Limited and The Football Association of Ireland are undertakings within the meaning of Section 3(1) of the Competition Act, and the notified arrangements constituted an agreement between undertakings. In the Authority's opinion the arrangements did not have, as their object or effect, the prevention, restriction or distortion of competition within the State or any part of the State.

16. The Competition Authority has issued the following certificate:

The Competition Authority certifies that, in its opinion, on the basis of the facts in its possession, the agreement dated 1 June 1990 between Adidas (Ireland) Limited and Cumann Peile na hEireann "Football Association of Ireland" for the exclusive supply and marketing of sportswear by Adidas to the FAI and the grant by the FAI to Adidas of an exclusive right to market the sportswear using the official FAI crest and to use the crest on other sportswear, (notification no. CA/425/92E), notified on 30 September 1992 under section 7, did not offend against section 4(1) of the Competition Act.

For the Competition Authority

Patrick Massey

Member

12 September, 1995.