Affected market: Sporting activities
The OFT's decision on reference under section 22 given on 13 October 2004.
Welsh Rugby Union (WRU) is the governing body of the [game of rugby union football in Wales] (see [note 1]). Ever 2033 Limited, trading as Celtic Warriors (the Warriors), was one of five regional teams in Wales. The Warriors were established by Pontypridd and Bridgend rugby clubs following the re-organisation of Welsh Rugby in May 2003, when the nine Premiership Clubs created five regional teams(see [note 2).
At the beginning of 2004 WRU had 50 per cent share holdings in three regional teams, the Ospreys (sold on 30 January 2004), the Gwent Dragons (acquired when they went into administration in Autumn 2003) and the Warriors (gifted to them in November 2003 when Pontypridd went into administration). When Bridgend also went into administration their share of the Warriors was gifted to the WRU. In June 2004 WRU put the Warriors in to [liquidation] and the players [negociated transfers] to the remaining clubs (see [note 1]).
As a result of this transaction the Welsh Rugby Union and Ever 2033 Limited have ceased to be distinct. The parties overlap in the supply of regional rugby in Wales and the share of supply test in section 23 of the Enterprise Act 2002 (the Act) is met. The OFT therefore believes that it is or may be the case that a relevant merger situation has been created.
The nature of competition in the supply of sports-related activities has distinctive characteristics. While sports leagues create a system of team rivalry, the OFT in a case such as this will focus on the economic impact of the transaction in terms of teams' revenue sources, including ticket and merchandising prices. No evidence gathered in this case suggested that teams compete for the same customers: as a general proposition, team loyalty suggests that any increase in ticket or merchandise prices for a particular team is unlikely to result in significant, if any, switching to other teams. It is perhaps conceivable that there are significant numbers of Welsh rugby supporters who do not follow a particular team but attend any rugby match in the area based on such factors as the quality of the sides and the ticket price. However, no evidence was presented on such hypothetical marginal consumers or on the existence of competition between the two sides for ticket sales or other revenue, nor did the OFT receive any complaints suggesting consumer harm through the merger as a result of higher ticket prices or similar.
WRU is responsible for distributing £7 million of revenue from media rights between the regional teams. One third party was concerned that in distributing the revenue WRU would favour those clubs in which it has a shareholding, although it cited a club in which WRU has no such stake. There is no evidence to suggest that, pre-acquisition, WRU treated clubs in which it had an equity interest any differently to the other teams, and since the Warriors have ceased trading there is no scope for favouring them, and thus no potential for discrimination resulting from the merger.
THIRD PARTY VIEWS
Two complaints were received, one concerning the vertical issue raised above and the other not relating to competition issues.
The parties overlap in the supply of regional rugby activities. There was no evidence to support the notion that the Warriors and Gwent Dragons were in competition for supporters before the acquisition, or that WRU discriminated – in favour of those clubs in which it has a shareholding – in distributing the revenue it controls. The acquisition occurred in the context of several financially struggling teams (one of which WRU had attempted to rescue) and an acknowledged aim of reducing the number of clubs dependent on a limited revenue stream. In light of these points, it is not considered that WRU's ability or incentive to raise price, or influence the competitive environment more generally, will change significantly as a result of the merger.
Consequently, the OFT does not believe that it is or may be the case that the merger has resulted or may be expected to result in a substantial lessening of competition within a market or markets in the United Kingdom.
This merger will therefore not be referred to the Competition Commission under section 22(1) of the Act.
- Clarification at request of parties received subsequent to decision.
- WRU felt at that time that it could support only four in financial terms but for political reasons five were established.