Rasenball Sport Leipzig and a 50+1 rule

By in Governance, People & Places

Sunday 3rd September

Lukasz Chmielewski – Student on the Mishcon De Reya Sports Law Academy

Introduction

In the spring of 2016 the German Bundesliga was joined by the fearless club from Leipzig. In the club’s short 8 years history it had an opportunity to celebrate 4 promotions, including the most important one to the 1st division of German football. However, behind the doors of the club’s recent success, there is a growing concern over its governance and avoidance of the main rule in domestic football.

In order to compete in Bundesliga, the clubs must hold a majority of its own voting rights. The clubs are usually governed by member-controlled parent associations where a club board is made up of delegates selected by the clubs’ shareholders. Rule 16.2 of the Charter of the German Football Association states that: “The club holds a majority interest in the company […] if it possesses more than 50% of voting shares plus one additional vote in the shareholders assembly”.

What it means in practical terms is that although the clubs are allowed to govern themselves as private limited companies, the member-controlled associations protect the clubs from the influence of external, corporate capital. The opportunities for external investments of course still exist although the rule prevents the investors to have an overall control of direction of the club. Even though it seems that the clubs’ economic stability and the competition’s integrity are protected, the rule itself leaves a room for few exceptions and an opportunity for corporate owned teams like RB Leipzig.

This article briefly looks at the factual and regulatory evolution of the 50+1 rule, touches on long-established exceptions and predicts whether RB Leipzig will be able to form an exception and change the legal landscape in German football.

Leverkusen Lex, Wolfsburg Lex

The roots of German football clubs and league rules certainly trace back further than 1998 when the 50+1 rule was established. Therefore not to discriminate the clubs who were initially founded as company sports teams, the rule allowed a significant exception. Bayer 04 Leverkusen and VfL Wolfsburg were both founded by German corporate giants, Bayer and Volkswagen, and today the corporations hold 100% of the clubs’ voting shares respectively.

The exception allows the external investors to hold more than 49% of the club’s voting shares if they have considerably supported the clubs before the 1.1.1999.  However, the companies are not allowed to sell or transfer their voting shares to anyone but the clubs.

The League’s charter states that “shares in the corporation must not be sold but may only be transferred back to the parent club free of charge. In the event of a sale of shares contrary to the rule or refusing to transfer the shares back to the parent club, the sporting license of the corporation will be revoked”.

Is it fair for someone not to have a majority of voting share in a club which he financially supported for more than 15 years? The issue arose at one of the current Bundesliga’s participants – TSG 1899 Hoffenheim. Until 17 years ago the club played between 8th and 4th tier of the domestic competitions. It would probably still compete at the lower levels of German football if it wasn’t for its ex junior player and multinational software corporation’s owner Dietmar Hopp. Over the past 17 years, Mr Hopp invested over 500 million euros into the club but still could only hold 49% of its voting shares. The 50+1 rule appeared to be more than a little bit harsh as the club would probably never have made it to the top tier of German football if it wasn’t for its investor. However in 2015, the League’s authorities have finally allowed Mr Hopp to take over the majority of voting shares due to his long-term investment in the club. It is significant to note that he will not be able to sell or transfer his shares to anyone but the club.

Are RB Leipzig breaking the law?

The effectiveness of the rule has been brought into question following the rise of RB Leipzig. The energy drink giant rebranded an amateur club SSV Markranstädt in 2009. Despite the fact that the League’s Charter strictly prohibits changing the club’s name for the sole purpose of advertisement, the club chose to change its name to RB Leipzig, its crest to two red bulls, and its kit to reflect Red Bull’s advertisements which are, by surprising coincidence, similar to the name, logo and aggressive marketing strategy of Red Bull energy drink.

Furthermore, the club as every other member of the German Football League, is governed by the member association which is usually open to new members. However, the membership fee at RB Leipzig is prohibitively expensive, and the association reserves the right to reject any application without a reason. Interestingly, Borussia Dortmund’s association has approximately 150,000 members and RB Leipzig’s only 17, all of whom are Red Bull employees.

But while the club created, governed and owned by Red Bull certainly violates the spirit of the rule and tradition deeply rooted in the history of German football, it doesn’t in fact break the law.

However the question arises whether the German League’s authorities will be able one day to grant another exception for the energy drink giants as they did with Hoffenheim following “Leverkusen/Wolfsburg lex”? Bearing in mind the company’s aggressive marketing strategy, controversy over the club’s governance and the fact that the company incorporated another four “Red Bull Clubs” in Austria, Brazil, Ghana and US from which it sources significant revenue, it seems unlikely.

Conclusion

The case of RB Leipzig demonstrates that despite the actual corporate ownership, the club is in fact still allowed to compete in the first division of German football and the rule has actually been unable to prohibit the founding of a new club, entirely owned and controlled by the corporate giant.

While at Hoffenheim, the League’s authorities have allowed a long-term local investor to obtain a majority of the club’s shares, it seems unlikely that the same will happen at RB Leipzig. The corporate governance and its aggressive, revenue-focused strategy clearly omit the fundamental values of German football and for these reasons the League’s authorities will never grant an exception to RB Leipzig, regardless of how long the energy drink giant will financially support the club.

 

This article was written by a student of the Mishcon Sports Law Academy and as such does not necessarily represent the view of Mishcon de Reya or its partners/employees.  The Mishcon Sports Law Academy is part of the firm’s graduate recruitment process. It is open to aspiring lawyers who are able to attend a series of evening seminars in London.

Please see www.mishcongraduates.com for more information or to apply.