The Commerce Commission today authorised the New Zealand Rugby Football Union's (NZRFU) proposed player transfer arrangements.

The NZRFU asked the Commission to authorise the arrangements because as a professional sports organisation it is covered by the same laws as other New Zealand businesses.

Commission Chairman Dr Alan Bollard said that an authorisation gives the arrangements legal protection against a player, union or anyone else taking court action over them if they thought they breached the Commerce Act.

The Act prohibits arrangements among competitors that substantially lessen competition, prevent competitors acquiring goods or services, or involve price fixing.

However, it allows otherwise prohibited arrangements to be authorised if the Commission is satisfied that public benefits from the arrangements outweigh their detriments to competition.

Dr Bollard said the Commission's view is that the benefits do outweigh the detriments.

In October, the Commission released a draft determination stating that, on information then available it, it would not authorise the arrangements because detriments outweighed benefits.

It invited interested parties to make submissions on the draft determination and held a conference to receive further information and ask questions.

In considering all the information available to it, the Commission concluded that the detriments resulting from the lessening of competition caused by the arrangements are difficult to gauge, but that they are clearly of limited size.

The main detriment - likely to be small in dollar terms - came from the proposed quota on player transfers. The quota would restrict the allocation of players to teams that valued their services most highly.

Other potential detriments - likely to be very small - were the cost of administering the arrangements and the erosion of the skills of players whose transfer wishes were frustrated by the arrangements.

The Commission concluded that the benefits to the public flowing from a more even NPC are likely to be of a reasonably significant size, even when calculated conservatively.

Added to this are smaller, indirect, and less certain benefits, arising from maintaining the value of overseas television rights, preserving the performance of representative teams, preserving sponsorship and maintaining inbound tourism associated with rugby.

The Commission therefore determined to authorise the player transfer arrangements.

  • A five page summary of the decision follows.
  • Copies of the decision are available from reception at the Commission's Wellington office, 7th floor, Landcorp House, 101 Lambton Quay.

Media contact:Chief Investigator Commerce Act Geoff Thorn

Phone work (04) 498 0956, home (04) 526 4267

Communications Officer Vincent Cholewa

Phone work (04) 489 0920, home (04) 479 1432

SUMMARY OF DETERMINATION

(Attachment to Media Release 17 December 1996)

This summary is only intended to provide an overview of the Commission's Determination. For detail and analysis refer to the Determination.

Introduction

On September 23 1996 the New Zealand Rugby Football Union Incorporated (NZRFU) applied, under s 58 of the Commerce Act 1986 (the Act), for authorisation to enter into and give effect to its proposed Player Transfer System. The NZRFU intends entering into the Player Transfer System by passing regulations relating to the Transfer System ("the Regulations") and by amending the NZRFU's rules. The NZRFU subsequently twice amended the Regulations, on 7 November 1996 and again on 20 November 1996. The Commission considered that neither amendment materially altered the application and accepted both amendments.

In the course of the investigation of the Regulations, Commission staff have spoken to, and sought comments from, a wide range of parties with an interest in the Regulations.

Salient Provisions of the Regulations

The Commission has identified certain provisions of the Regulations which it considers as its primary focus. These components are:

    • The quota system which restricts the number of rugby union players which a provincial union may procure in any year;
    • The transfer period which provides that the transfer of players will be limited to one month in each year (November); and
    • The Development Compensation Payment provisions which require a payment to be made between provincial unions on transfer of a player. This payment is a matter of negotiation between provincial unions and may be zero, but cannot exceed the maximum established in the Regulations in respect to each band of player. The Regulations also specify that the maximum transfer values for players will apply in the absence of agreement between the parties.

Market Definition

For the purposes of analysing the competitive impact of the Regulations under the Act, the Commission has identified three relevant markets, being the New Zealand wide markets for:

    • The provision and acquisition of premier rugby union player services (relationships between players and provincial unions), the "market for player services";
    • The provision and acquisition of rights to premier rugby union player services (relationship between the provincial unions - provincial unions can trade their rights to have certain players representing them), the "market for the rights to player services"; and,
    • The provision and acquisition of sports entertainment services, "the sports entertainment market".

Competition Analysis

In the Determination, the Commission has considered whether, in respect of each of the markets listed, any or all of the above provisions might breach s 27, s 27 via s 30 or s 29 of the Act.

The Commission's conclusions are that in relation to the market for the rights to player services:

  • The quota system and transfer period have the purpose, effect or likely effect, of lessening competition in terms of s 27;
  • The quota system is an exclusionary provision in terms of s 29; and
  • The transfer fee is a price fixing arrangement in terms of s 30.

    • The Commission's conclusions are that in relation to the market for player services:

  • The quota system and transfer period have the purpose, effect or likely effect, of lessening competition in terms of s 27.

    • The Commission's conclusions are that in relation to the sports entertainment market:

  • The Regulations do not have the purpose and will not have the effect of lessening competition in the market for sports entertainment services.

    • In considering an authorisation, the Commission must compare the public benefits that would result from the proposal with its detriments to competition. It grants an authorisation if it is satisfied that benefits outweigh detriments.

    To do this, it must consider what would happen in the relevant markets if the proposal was authorised and went ahead and also what would happen if it was not authorised and did not go ahead. This second situation is known as the "counterfactual".

    The counterfactual adopted by the Commission, is one in which the framework established by the NZRFU's regulations remains, but the elements which might arguably restrict competition have been removed. That is, the transfer system would have no quota system, no time period restriction, and no cap on the transfer fee.

    Detriments

    The Commission's conclusion on the detriment arising from the Regulations is that:

    • the main category of detriment arises from the restriction by the quota on the allocation of players to the teams which value their services most highly, but estimates of the size of the loss of allocative efficiency suggest that the detriment is likely to be small in dollar terms;
    • while the two other potential detriments - the loss of productive efficiency in terms of the costs associated with the administration and policing of the Regulations, and the erosion of the skills of those players whose transfer wishes are frustrated by the Regulations - are not able to be quantified, they are very small; and
    • the Commission has thus reached the conclusion that the detriments, in total, are likely to be small in dollar terms.

    Public Benefits

    The Commission's conclusions on public benefit are that:

    • there is some nexus between the Regulations and the promotion of less uneven NPC games, improved player development, and more team stability, compared to the counterfactual. However, the nexus is likely to be weak;
    • the claimed benefits are intrinsically difficult to measure; and
    • the Commission is not inclined to put an overall dollar value on the public benefit likely to derive from the Regulations.

    Balancing Benefits and Detriments

    Sections 61(6) and 61(7) of the Act set out the balancing exercise to be undertaken by the Commission in considering an application for authorisation. The Commission has considered the range of public benefits and detriments which are likely to flow from the Regulations and is satisfied that the benefit is likely to be of an order of magnitude sufficient for it comfortably to exceed the size of the detriments.

    Determination

    Having concluded that the benefit to the public which results from the Regulations outweighs the lessening in competition that would result and that the benefit is such that the Regulations should be permitted to be entered into and to be given effect to,

    the Commission, pursuant to ss 61(6) and 61(7) of the Act, determined to grant an authorisation for the NZRFU to enter into and to give effect to the Regulations Relating to Transfer System in the amended form presented to the Commission on 20 November 1996.