In a case set to shake up Scotland’s commercial trade book publishing market, Strident has filed a damages claim against Scotland’s main arts funder, Creative Scotland (CS), accusing it of breaching the Competition Act 1998 (CA98) by abusing its dominant position.
The claim before the Competition Appeal Tribunal (CAT) alleges that CS has breached the special responsibility not to distort competition that is placed by CA98 upon those dominant in their market.
CS has poured £0.41m of National Lottery money into Sandstone Press to underwrite £0.31m of losses, meaning that CS’s most-funded publisher has squandered more CS funding than any other publisher.
CS has also subsidised the £2m balance sheets of two dominant publishers, Birlinn and Floris Books, funding projects it was clear they could fund themselves. In addition to dividends and other benefits, Birlinn pays its shareholder £34.5k pa rent for offices he owns personally. Floris donated to an overseas trust the equivalent of 83% of its 2017 CS funding, received despite the company having made over £0.5m profit in 3 years.
Creative Scotland chose not to assess whether Birlinn or Floris required the funding they had applied for or to assess the impact on competition of funding them in preference to their considerably smaller competitors.
Sandstone Press: the bottomless pit into which Creative Scotland has thrown £0.41m it could have used to give grow viable competitors.
A 2013 Creative Scotland assessment stated: ‘Sandstone has been receiving large subsidies from CS for several years now…and seems to have become reliant on them.’ CS not only failed to take account of this, by 2019 it had trebled its investment finance to Sandstone to £0.41m despite continuing annual losses. CS’s funding of Sandstone came after it was heavily criticised for the failure of Freight Books in 2017. It funded Sandstone irrespective of the losses in order to protect its own reputation. In doing so, it denied the same funding to Sandstone’s viable competitors.
Scotland’s taxpayers are now exposed to the tune of £0.6m after Highlands and Islands Enterprise (HIE), knowing that CS would keep Sandstone in the market regardless of its performance, provided Sandstone with a £175k working capital facility in early 2019. Fourteen working days later, CS agreed to top up Sandstone’s balance sheet with another £30k of Open Project Fund investment finance, despite Sandstone having lost almost £0.1m in 2017/18, resulting in it needing emergency funding. Just a few months earlier, the two agencies had attended Sandstone’s strategy day. An email reveals that CS offered to provide HIE with background information on Sandstone’s CS applications.
CS’s investment finance represents 577% of Sandstone’s meagre £71k net assets.
Competition and Market Authority guidance is unequivocal: public bodies MUST take account of the impact on competition of intervening in commercial markets. CS ignored that CMA guidance, as well as ignoring CA98.
Fiction publishers in Scotland ranked by net assets. No similar publishers have >£50k net assets.
Floris and Birlinn, ranked 1st and 2nd, have received the 2nd and 3rd largest totals of CS funding. Their totals are more than 7 times the net assets of the next largest publisher below the four shown. Despite that, CS funded them 1.125 time per annum between 2011 & 2019.
Sandstone has received more CS funding than any other publisher.
(Excludes Canongate, which has drawn on private funding not available to others.)
Strident’s Keith Charters said, ‘Having been found out, Creative Scotland is trying to close the stable door after the horse has bolted by claiming – after the fact – that it is entirely exempt from the Competition Act because it was established by statute. It is a measure of CS’s desperation, as well as its ignorance of competition law, that it is claiming an exemption that doesn’t even exist. Only actions can be exempt, not entire bodies, public or not.
‘CS has refused to negotiate a settlement or change its policies, leaving us with no option but to force it to comply with the law.’