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Anti-Trust probe could put 2024 Olympic classes on hold

by Richard Gladwell, Sail-World.com/nz 1 Nov 22:28 PDT 2 November 2018
Will the Finn make it to Marseille for the 2024 Olympic Regatta? © Richard Gladwell

World Sailing has confirmed that it has received a request for further information from EU Anti-Trust Commission in regard to a complaint first lodged with its Italian equivalent.

Devoti Sailing, one of the top European boat manufacturers, obtained a legal opinion to the effect that the actions of World Sailing in regard to the selection of single manufacturer one-design sailing craft are not compliant with European Union Competition Law.

The matter has now been taken away from the complainant and is being driven completely by the EU and their investigation arm, who will also determine how far the net will be spread. The first legal opinion includes the Youth Olympics in the same embrace as the Olympic classes. However boats are supplied at both the Youth Olympics and Youth Worlds. Both series are open entry and with supplied boats (neither criteria applies to the Summer Olympics) and certainly in the case of New Zealand trials have been held to select contestants using another class and indeed boat type.

The Commission is expected to investigate under its so-called Anti-Trust articles known in other jurisdictions as anti-monopoly or anti-competition law.

Outcomes could range from "Move along - Nothing to see here", to Olympic Sailing's Armageddon.

The International Olympic Committee is named in both opinions - being the body which gives World Sailing, as an International Federation, an exclusive "licence" over Event and Equipment options for the Olympic Sailing Regatta. The legal opinions believe that granting that licence gives the IOC some responsibility over compliance.

While the Anti-Trust provisions have been in the European Commission domain for many years, the commission has only recently decided to extend its purview into sports arena. However Sailing is also in a unique situation in that it is the only Summer Olympic sport that dictates the equipment which must by used by all competitors, and indeed that in the case of the Nacra 17, Laser, Laser Radial, RS:X the sail-away boats are all from a single supply source. With the 49er and 49erFX there are two licenced builders, but only one rig supplier.

Another aspect that while maybe not intentional and is maybe an unintended consequence that the licenced or Measurement Controlled One Designs (MCOD's) have been progressively replaced by Single Manufacture One Designs (SMODs). In the 1992 Olympics there were seven classes that were MCOD's, in the 2016 Olympics there were just two MCOD's, and at least one more MCOD looked set to be dropped in 2024 - leaving just the 470, but used in only one event not two. It is this creeping attrition that is believed to have triggered the compliant.

On Wednesday, the World Sailing Board issued a statement concerning various 2024 Olympic Equipment selection issues and noted:

The Board notes the legal opinion [referring to the second one believed to have been independently commissioned by a World Sailing Board member] is not an opinion commissioned by World Sailing nor has the Board seen the instructions which led to it being produced. There appear to be substantial factual inaccuracies with its contents and the legal analysis set out in it. It is directly contradicted not only with the external legal advice obtained by World Sailing but is also at odds with the fact that the Italian competition authorities have now concluded their discussions with World Sailing about the 2024 equipment decisions without opening any formal investigation.

It is believed that World Sailing was advised of the European Commission's interest in the matter until later that afternoon. The statement above is correct at the time it was made, but it seems that World Sailing was caught unawares by the escalation process which came in a letter from the Directorate General of the European Commission, the body that enforces EU Competition and related Rules and Articles that it was commencing an investigation into alleged anti-competitive conduct of World Sailing based upon its selection of single manufacturer Olympic Classes.

A written statement issued by World Sailing confirmed that the world governing body had "received an email yesterday from the EU Commission requesting further information in response to a complaint it has received. The details of the complaint have not been explained, but World Sailing is compiling the information to provide to the Commission and we are co-operating with its review of the complaint.

"Since November 2017, World Sailing has a Council-approved Antitrust Policy and Regulations, prepared in consultation with specialists in sports law and competition law, since November 2017 and this Policy is now being implemented by World Sailing. The 2024 Olympic Classes Contract contains stronger obligations on Olympic manufacturers concerning quality control, warranties, production requirements, and increased monitoring of equipment by World Sailing.

"Due to the nature of these proceedings, no further comment will be made", the statement concluded.

While World Sailing has adopted its own Anti-Trust rules and processes, these are still subject to being tested by the relevant EU authorities. Such a policy cannot replace the EU Articles. However a key question will be how adequately they are nested within the relevant European Union strictures. Unfortunately the issue started in 1992/93, not 2017 and the past actions will have to be addressed by the EU.

Two years gestation

The matter has been looming since 2016 when an Olympic class builder obtained a legal opinion from Professor Giacomo Di Federico, an Associate Professor of European Union Law at the University of Bologna. The institution was established in 1088AD and is the world's oldest university in continuous operation, as well as one of the leading academic institutions in Italy.

The cover note sent on May 16, 2016 reads:

We write to you on the instruction of a number of European sailing boatbuilders, sailmakers and sailing equipment manufacturers.

We have been asked to advise on the consistency with competition law of the decisions that World Sailing (formerly the ISAF) has made in the past, and may make in the future, regarding the selection of boat classes for sailing events at the Olympics and at the Youth Olympics.

We refer to the fact that there has been, gradually over time, a move away from unrestricted construction of boat by any yard, and of rigs and sails by any manufacturer (subject always to the rigorous technical specifications that were in place); and towards boat whose construction and equipment is subject to industrial property rights, produced on an exclusive basis under licence from the rights holder.

Currently, there are only two classes not subject to such restrictions, and we have learned that they too may shortly be replaced by other classes that will be so subject.

Quite evidently, that situation appears contrary to competition law, not least that of the European Union. Accordingly, we instructed Giacomo Di Federico, associate professor of European Union law at Università Alma Mater Studiorum in Bologna to prepare the independent (pro veritate) opinion enclosed herewith.

That opinion reveals the clear illegitimacy of both the past decisions, and those rumoured for the future – and hence the risk of penalties and other sanctions that may be faced by both World Sailing and the International Olympic Committee (which has been copied in on this letter).

Should the situation not be remedied as soon as possible (following immediate assurances to us from yourselves), our clients intend to draw the matter to the attention of those authorities best placed to address the matter.

Many of our clients have already suffered considerable losses as a result of the policies that WS has adopted, and should the situation remain unaltered, they intend to pursue their interests and seek all appropriate forms of relief for the losses they have suffered to date, and may suffer in the future.

The second legal opinion, also from a leading Italian legal adviser is believed to confirm the points made by Prof Di Federico.

Essentially the claim is that by selecting a class for the Olympic Sailing Regatta, that can only be sourced from a single manufacturer, then a monopoly, oligopoly or duopoly market structure is created.

The EU investigation is limited only to Olympic classes, because when IYRU/ISAF/World Sailing select a class for the Olympic Regatta, and that class can only be built by a single manufacturer, then sailors are forced to buy from that supplier only - and a monopoly of one type or another is created, and in some jurisdictions that may be illegal.

The process of investigation is set out here , as are the hefty financial penalties for infringement.

It would seem that World Sailing is on the first level of the timeline in the EU schematic.

World Sailing was first advised of the issue by the Olympic class builder in December 2016 and was sent a legal opinion by Prof Di Federico.

The builder told Sail-World NZ that he had tried to engage with World Sailing, but got nowhere despite several meetings and was forced to file with the Italian authorities in May 2018. In turn, they appear to have undertaken a preliminary investigation, found that many countries were involved and referred the matter to the EU, who have advised World Sailing of their interest in the matter so that World Sailing either has the option of putting its class and event decisions on ice until the matter is resolved. If a body continues to operate having been advised that they are in breach, then it would appear that the penalties could increase substantially.

World Sailing circulated a note in mid-October entitled an "Olympic Equipment Update".

"One common argument for measurement controlled one design [like the Finn and 470] is that anybody can produce everywhere in the world - the facts are far from this. If this were the case, it would lead to MNAs buying equipment from several suppliers in order to secure a competitive campaign. For some one-designs development is leading to near-exclusivity situations driven by performance anyway. For instance, for the Finn leading up to the Rio Olympics, a new design was developed which saw a major price increase and 22 out of 23 boats in Rio being this new design from one single manufacturer. So despite even in a free to build market, the potential for exclusivity remains."

The note drew widespread derision because it ignored the fact that in the MCOD or licenced builder classes the sailor is free to buy spars, sail, foils and fittings from whoever they please, provided the complete boat passes measurement as a Finn or 470 or whatever.

Sailing is also the only Olympic boat sport which specifies which manufacturer has sole rights of supply - which it may do directly or by sub-licence/franchise. Certainly, in Rowing it would be a ludicrous situation for Empacher to be the only permitted builder of Eights, Wintech to be the sole supplier of Fours and Stampfli, the sole supplier of Singles and Doubles.

Many in the marine industry believe the shift to Single Manufacturer One Design has killed off the nursery of the sector, where many of those starting out were sailors who began making sails, boats, spars or foils for themselves in a garage and then expanding when the demand kicked in and grew to be large marine enterprises. North Sails began in exactly this way.

The EU usually is only interested in corporates and similar multi-national organisations that are engaged in activities that have geared up to exploit a market to their illegal advantage. In 2015 the EU cast its gaze to other sports and has already produced one landmark decision in regards to the rights of a sports body to sanction athletes for competing in a rival competition.

Change came with Laser

World Sailing and its predecessors formerly (from 1896 to 1992) ran a system where Olympic classes were selected for events, and anyone could build the hull, mast, sails and foils - even make their own fittings.

The boats were all controlled by a strict set of class measurements, and if they passed the boat was issued with a measurement certificate, and they could sail in class regattas including the Olympic Regatta. Usually, some measurement scrutineering was undertaken, and it was the responsibility of the boat's owner to make sure that it stayed "in class".

Many of the Olympic classes in the 1950's to 1990's were selected from selection trials conducted by the then International Yacht Racing Union, after which IYRU selected a boat, and negotiated with the team that built the boat before it was promoted to the Olympics. The main issues were the copyright for the design being vested with the IYRU, who in turn collected Building Fees and issued Building Plaques and passed a percentage of the Building Fee over to the designer as a royalty. Boats could not race without a Building Plaque. In some classes, the Builders were required to be licenced by the IYRU (mainly for reasons of quality control, in others like the Finn today, anyone could build a boat),

This system ran for all classes of yacht provided they were International Class status.

After the 1992 Olympics as the Laser phenomenon swept the sailing world, the IYRU made a call to embrace the one design, single manufacturer single hander. However IYRU in their keenness to be cool, changed their model so that they did not get the copyright, and Performance Sailcraft remained as the only company who could build or licence builders.

Of the current [sailed in the 2016 Olympics] classes only the Finn and 470 remain under the licenced builder model. Essentially sailors can buy a boat from who they wish. They can purchase sails from whomever they wish, and the same with spars, foils and hardware. There is also a certain amount of customisation permitted - so the boats can be set up to suit the physique of the sailors.

Looking ahead, World Sailing may be able to continue with its 2024 Class and event selection but only select classes subject to the class copyright/patent holder agreeing to the class shifting to the licenced and multiple supplier system.

Or it might decide to work through the EU process.

Live Video Show from Saratosa and the World Sailing Annual Conference

US website SailingIllustrated.com has confirmed that Wednesday evening in Sarasota World Sailing President Kim Andersen (DEN) and the non-sailing CEO Andy Hunt (GBR) held an unprecedented closed-door meeting with the Board and Council. Following that meeting the rumors were rampant; Tom Ehman went live Thursday afternoon with fact-based reporting and analysis from esteemed sailor-lawyer J. Joseph Bainton (USA), who is closely following all this at the meetings in Sarasota.

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