Football kit is big business for suppliers, retailers, and football clubs. Unsurprisingly therefore the distributorship agreements entered into can also raise important legal issues.
This has been demonstrated over the last 12 months by the dispute between Sports Direct and Newcastle United and adidas which has cast a spotlight on the competition law issues that can arise when suppliers negotiate new distributorship agreements.
Background
On 1 September 2023, Newcastle announced that it had agreed a multi-year partnership with adidas for the sportswear brand to become its official kit partner from the 2024 / 2025 football season. The deal with adidas and a linked distribution and supply agreement with JD Sports meant that for the current football season the following broad arrangements would be in place governing sales of replica Newcastle kit:
- Adidas would hold rights relating to online sales generally and physical sales outside the UK;
- Newcastle would hold rights relating to direct wholesale distribution, UK physical sales, and online sales generally;
- JD Sports would hold rights to online sales and (subject to the rights of Newcastle) exclusive rights to UK physical sales; and
- Sports Direct and other retailers would no longer hold rights to online or physical sales of Newcastle replica kit.
In the wake of this, Sports Direct issued a claim in the Competition Appeal Tribunal (“CAT”) on 14 March 2024 alleging that:
- Newcastle had abused its dominant position in the market for the supply of Newcastle United replica kit in the UK, in breach of the prohibition in Chapter II of the Competition Act 1998; and
- Newcastle had entered into exclusivity arrangements with JD Sports and / or adidas which were in breach of competition law.
Given the shortness of time before the start of the 2024 / 2025 season, Sports Direct sought an injunction to stop the linked distribution and supply agreement from being performed.
So, what happened then?
In mid-April 2024 the CAT unanimously refused to grant an injunction as Sports Direct had failed to show that there was a serious issue to be tried – the first of four requirements which must be satisfied if an injunction is to be granted.
The CAT also rejected an application to appeal the injunction decision and urged the parties to proceed to a speedy trial.
Less than five weeks later the Court of Appeal decided that the CAT was wrong in deciding that Sports Direct had no serious case to be tried but (considering the other requirements which had to be satisfied) the CAT was right to refuse to grant an injunction.
Three weeks later the new adidas Newcastle replica kit was launched – but it was not available either in Sorts Direct stores or on the Sports Direct website!
Four months later at a pre-trial administrative hearing, an order was made that the trial would start on 2 February 2026.
However, on 24 February 2025, the dispute was settled.
Whist the terms of the settlement are confidential, there are lessons for suppliers and distributors.
Lessons for suppliers and distributors
Lesson one: it is no infringement of competition law to supply the market on an exclusive basis.
In its decision the CAT stated that a refusal to supply another undertaking cannot give rise to an arguable case of market abuse (and so cannot be an infringement of competition law) “without some further allegation” and noted that neither:
- abusive pricing; nor
- margin squeeze,
had been alleged by Sports Direct.
Competition law is concerned with an abuse of a dominant position, not the holding of the position. As the CAT pointed out, competition law,
“is not intended to shackle the commercial operations of the dominant undertakings”.
Lesson two: whether a change in distributorship arrangements amounts to an abuse of dominant position will depend on the facts of the case.
Generally what will usually be taken into account are:
- the reason for the change;
- whether the change was truly unilateral;
- the degree of notice given;
- the extent of the distributor’s expectation of continuity (and the extent to which this is reasonably founded);
- the length of the supply chain; and
- the harm that will or may occur resulting from the change.
On the facts, the CAT considered that the expectation of continuity was low given that Castore (the pre-existing kit manufacturer) had exclusive distribution rights and there was therefore existing fragility in Sports Direct’s supply chain. The CAT went on to point out that the owners of Newcastle (who had in October 2021 bought the club from Mike Ashley, the majority shareholder of Frasers Group, the parent company of Sports Direct) were entitled to enter into new arrangements and that there was no evidence to suggest that the previous arrangement with Castore had been unlawfully terminated.
As a result, Sports Direct had “no reasonable or legitimate expectation” of continuity and the suggestion that there was an obligation on Newcastle and adidas to maintain existing relationships represents:
“a significant fetter on competition and not an enhancement of it.”
The CAT also considered that it was arguable that Sports Direct had received ample notice, with the announcement being made well in advance of the 2024 / 2025 season.
Lesson three: a retailer or distributor cannot simply rely on its reputation as a discounter to allege infringement of competition.
Sports Direct had argued that it was highly material to the case that it was a well-known discounter of prices.
This was accepted as fact by the CAT. However, the CAT considered it to be immaterial given the absence of an argument that Newcastle was directly or indirectly involved in unfair pricing.
Lesson four: better prices for consumers is not the be all or end all.
The CAT assumed that Newcastle supplying Sports Direct would result in better prices for consumers but stressed that:
“[t]here can also be benefit to the consumer – especially over time – in allowing undertakings to structure their distribution in the way they judge most profitable and effective.”
In other words, higher prices for consumers are, therefore, not in themselves anti-competitive.
Related News
Authors
Related legal expertise
Connect with us
