Transfer window closed: CJEU’s game changer for football transfers
We have recently written about the UK and European courts’ interventions in sports by using competition law principles, in our articles looking at the recent European cases concerning the dominance of sports governing bodies,[1] the market problems in sports ecosystems such as issues with sports agents’ fees,[2] and the recent resurgence of private actions related to replica football kits.[3]
In this article we look at Friday’s decision by Europe’s top court which, again, uses competition law to address another area of concern in the sports ecosystem – the football transfer system - and how Lassana Diara, a former professional football player, employed private competition enforcement to challenge FIFA’s grip on football. The court found that parts of the football transfer system are contrary to competition law and the freedom of movement of workers. [4]
The FIFA Transfer Regulations
On 22 March 2014, FIFA adopted the Regulations on the Status and Transfer of Players (“RSTP”) which came into force on 1 August 2014. The RSTP, in summary, state the following where a football player’s contract with their club has been terminated “without just cause”:
- The player is liable to pay compensation to their former club and, if the player is joining a new club, that new club shall be held jointly and severally liable for paying that compensation. Further, if the new club signs that player it shall be presumed that the new club will have induced that player to breach their contract, the penalty on the club for doing so being a ban from registering any new players for two entire and consecutive registration periods; and
- An International Transfer Certificate (“ITC”), which the player needs their former football association to issue to the new association so that they can play at their new club, shall not be delivered if there is such a contract dispute.
Background
Lassana Diarra (called “BZ” in the court proceedings) is a former Chelsea, Arsenal and Portsmouth midfielder who signed a four-year deal with the Russian football club, FC Lokomotiv Moscow, in 2013. In 2014, the club terminated his contract on the grounds of alleged misconduct and sued him in FIFA’s Dispute Resolution Chamber (“DRC”) for €20 million in compensation, claiming “breach of contract without just cause” under the RSTP. In 2015, The DRC partially upheld Lokomotiv’s claim and ordered Diarra to pay €10.5 million in compensation.
Meanwhile, Diarra tried to get hired by the Belgian football club, Sporting Charleroi, but failed. Diarra claims that this was because of the club’s fear of being held jointly and severally liable for breaches of his contract with Lokomotiv and due to the inability to be provided with an ITC. He sued FIFA and the Royal Belgian Association of Football Societies (“URBSFA”, the governing body of football in Belgium) claiming €6 million in compensation for the loss he suffered as a result of not being able to find a new club. In 2017, the Belgian courts considered his claim to be well-founded and ordered FIFA and URBSFA to pay a provisional sum. On FIFA’s appeal, the court referred two questions to the Court of Justice of the European Union (“CJEU”) to consider the RSTP under Article 45 TFEU (freedom of movement of workers) and Article 101 TFEU (the prohibition against decisions of undertakings and concerted practices which have as their object or effect the prevention, restriction or distortion of competition).
Those two questions were, do Articles 45 and 101 TFEU render unlawful the provisions of the RSTP which: (i) make the new club liable for the player’s breach of the previous club’s contract; and (ii) force a refusal to issue an ITC as long as there is a dispute between the former club and the player?
The CJEU’s Decision
The CJEU’s answer is a resounding Yes on both counts. The court held, on Article 45, that the RSTP rules impose considerable legal risks, unforeseeable and potentially very high financial risks as well as major sporting risks on those players and clubs wishing to employ them which, taken together, are such as to dissuade clubs from engaging new players, impeding their free movement. Although it was considered that the rules might be justified, to ensure the regularity of interclub football competitions, by maintaining a certain degree of stability in the player rosters of football clubs and a certain continuity of the contracts, it was held that the rules in question go beyond what is necessary to pursue that objective.
On Article 101, the court held that the RSTP rules have as their object the restriction and prevention of cross-border competition between football clubs, which was said to be generalised, drastic and permanent. Without those rules, any professional football club is free to compete with any other by recruiting players already engaged by a given club. The court noted that football clubs’ ability to compete with each other by recruiting trained players plays an essential role in the professional football sector. The RSTP rules, even if presented as aiming to prevent the poaching of players by clubs with greater financial resources, were stated to be comparable to a general, absolute and permanent ban on the unilateral recruitment of players already signed, imposed by a decision of an association of undertakings on all undertakings that are professional football clubs, across the entire EU, and weighing on all the players.
Noting that it was up to the referring court to determine any exemption under Article 101(3), the CJEU nevertheless noted the referring court would need to take into account that the RSTP are characterised by a combination of elements, a significant number of which are discretionary or disproportionate in nature and that prima facie precludes considering that the RSTP rules are indispensable or necessary in order to achieve efficiency gains.
Conclusion
There has already been much written about how the CJEU’s decision marks a significant and seismic change to the football transfer system. Looking forwards, the decision could lead to an increase in players moving clubs without the spectre of massive financial risk to them or their new clubs which could improve the power dynamic between players and clubs.
What is notable, however, is the CJEU’s willingness to intervene in the regulation and governance of sport. When seen against the backdrop of a global general resurgence in the use of antitrust enforcement, this decision represents a significant new milestone in the use of competition law by those harmed by powerful sports bodies to force change and improvement in the sports ecosystem.
Footnotes
[1] https://www.hausfeld.com/en-gb/what-we-think/competition-bulletin/competition-law-and-sports-a-new-era-for-sports-regulation/
[2] https://www.hausfeld.com/en-gb/what-we-think/perspectives-blogs/ffar-or-foul-play-fifa-s-competition-law-conundrum/
[3] https://www.hausfeld.com/en-gb/what-we-think/perspectives-blogs/a-new-season-for-replica-football-kit-cases/
[4] Case C-650/22 – FIFA v BZ