AG Opinion in FIFA v BZ – Further competition trouble for football rules

Most professional football transfers happen when a player is free to leave because their contract expires, or when current club, player, and new club come to a mutual transfer agreement.

But the world is not perfect. Situations arise where a player does not live up to expectations or does not feature in the manager’s plans. Ambitious players may want to move even though no mutual agreement on a transfer fee can be reached. Sometimes this leads to the player no longer showing up for training, or the club forcing the player to train with the junior team or refusing to pay their wages. Worse, a new club may encourage a player to behave in a way that would lead to their contract being terminated. To combat excesses in this field, FIFA has in place rules under which compensation and sporting sanctions can be imposed on a club or a player who breaches a contract, and any new club that induces a breach by a player.

French footballer Lassana Diarra, once instrumental in leading Portsmouth FC to a historic FA Cup trophy, became embroiled in a dispute over these rules. After his success at Portsmouth and a stint at Real Madrid, he ended up sidetracked at Lokomotiv Moscow, who terminated his contract for disciplinary reasons in 2014. The club also demanded payment of EUR 20 million in compensation, of which more than EUR 10 million was awarded. The case ultimately led to a referral to the CJEU, asking whether the rules in the RSTP were tenable under the EU’s freedom of movement and competition laws. In the latest development in the case, Advocate General (AG) Szpunar has opined that they were not.

Background

Mr Diarra signed a four-year contract with Russian club Lokomotiv Moscow in 2013. The club terminated the contract in 2014 for disciplinary reasons and applied to FIFA’s Dispute Resolution Chamber (DRC) to order Mr Diarra to pay compensation of EUR 20 million, alleging “breach and termination of contract without just cause”. Mr Diarra filed a counterclaim seeking unpaid wages and further compensation.

Under FIFA’s Regulations on the Status and Transfer of Players (RSTP), a player can only transfer to a different football league, if the new association that they transfer to (here, the Belgian football association) obtains an International Transfer Certificate (ITC) from the previous association (the Russian association). However, the RSTP state that an ITC is withheld if there is a contractual dispute between player and former club.

In addition, the RSTP require that if a player or club breaches a contract and the contract is terminated, the party in breach shall pay compensation. If a player is required to pay, his/her new club will be jointly and severally liable for the payment. In addition, sporting sanctions will be imposed on any club found to be in breach of contract or found to be inducing a breach of contract. There is a presumption that if the contract was terminated by the original club for breach and the player joins a new club, that new club has induced the breach of contract.

While his case was pending, Mr Diarra searched for a new club and in February 2015 received an offer from Sporting du pays de Charleroi. However, the offer was conditional on him being eligible to play in Belgium, and on him obtaining confirmation that Charleroi could not be held jointly and severally liable to pay Lokomotiv Moscow’s claim. As mentioned above, (i) an ITC would be withheld under the RSTP if Mr Diarra was in a contractual dispute; and (ii) Charleroi could be held jointly and severally liable to pay Lokomotiv Moscow if it was seen to have induced Mr Diarra’s breach.

Mr Diarra and Charleroi’s advisers sought such confirmation from FIFA, which replied that only the DRC could apply the relevant rules. In May 2015, the DRC upheld Lokomotiv Moscow’s claim in part, ordering Mr Diarra to pay EUR 10.5 million to Lokomotiv Moscow and holding that future clubs of Mr Diarra would not be jointly and severally liable. That decision was confirmed by the Court of Arbitration for Sport (CAS) in 2016. In the summer of 2015, Mr Diarra signed with Olympique Marseille, where he was nominated for player of the season in the French league in 2015/16. He finished his career at Paris Saint-Germain where he won the cup and the league.

Mr Diarra brought proceedings in court against FIFA and the Belgian football association claiming their application of the RSTP was contrary to EU law and seeking compensation of EUR 6 million for loss of earnings. The Belgian first instance court agreed and ordered FIFA and the Belgian association to pay him EUR 60,001. FIFA subsequently appealed that judgment, leading to the Court of Appeal of Mons asking the CJEU whether the relevant RSTP rules were consistent with Articles 45 and 101 of the TFEU.

The AG’s Opinion

AG Szpunar was appointed to provide an Opinion on the case. Such Opinions are not legally binding on the CJEU, but they are authoritative statements on EU law, and AG Opinions are often followed by the Court. In this post, we will focus on his analysis of the RSTP rules under Article 101 of the TFEU.

The AG notes that the Grand Chamber CJEU recently issued the Superleague and Royal Antwerp rulings, which he refers to as “arrêts de principe”concerning rules adopted by FIFA, UEFA and national associations. Consistent with the case-law in this area, the AG confirms that the relevant provisions in the RSTP are decisions by an association of undertakings, capable of affecting trade between Member States. He also adds that the fact that the RSTP provisions concern “labour law” does not alter this finding, since the Albany exception (which exempts collective agreements between workers and employers) does not apply since the RTSP is not a collective agreement.

The AG then goes on to consider whether the relevant rules have the object or effect of restricting competition. In this respect, it is interesting to note that the European Commission (intervener in the case), had submitted that the rules should not be seen as restrictions by object, as they apply only in the event of termination of contract without just cause and therefore have no impact on the possibility for clubs to compete freely by signing up players both at the end of the contract binding them to their former club and during the term of that contract, provided that such a signing is agreed by all concerned and complies with the various temporal and material rules governing the registration of players.

However, the AG takes a different view to the Commission. According to the AG, the combination of the relevant RSTP provisions leads to a scenario where, as soon as a player has terminated a contract without just cause, compensation must be paid and severe sporting sanctions kick in. Moreover, such a player will not receive an ITC and can therefore not play for their new club.

This makes the provisions “so draconian”, that they are designed to deter and to “send a chill down each player’s spine”, according to the AG. This also applies to clubs who may wish to lure players while they are under contract. Therefore, the provisions limit players’ ability to switch clubs and clubs’ ability to hire players, in circumstances where the recruitment of talented players is “one of the essential parameters of the competition in which football clubs may engage” (Royal Antwerp, para 107), where players are the most important “factor of production” for clubs (a term used by FIFPro, adopted approvingly by the AG). The fact that there are other ways in which a player can change clubs, as the Commission observed, does not mean the provisions are not restrictions of competition by object. Whenever a contract is terminated without just cause “competition is … designed to come to a halt”. The AG views this as a clear restriction of competition by object.

As a final point, the AG considers whether the provisions of the RSTP could be justified under the Wouters case-law. In this respect, the CJEU ruled in Superleague and Royal Antwerp that such potential justification would only be possible if the restrictions in question were effects restrictions. Justification was not possible for object restrictions. Following these rulings, the AG held that the issue of justification under Article 101 would only need to be considered if the Court disagreed that the RSTP provisions have the object of restricting competition. The AG further notes that the test would be, in essence, the same as justification under Article 45 (freedom of movement), and he deals with the issue of justification under that provision of the TFEU.

On potential justification of the RSTP rules, the AG holds that the aim of contractual stability can be an overriding reason relating to the public interest. However, he questions the proportionality of the need for the player to compensate for breach of contract. In particular, the amount owed must not exceed what can reasonably be considered necessary to compensate the other party and to deter the player from terminating the contract. In addition, there is too much uncertainty on whether and when a new club would be held jointly and severally liable. Finally, the ability to refuse the issuance of an ITC even if there is only an allegation of breach could be problematic. Ultimately, these are issues for the referring court to determine. As for the competition rules, these considerations would only be relevant if the Court holds that the RSTP rules do not have the object of restricting competition.

Comment

The Opinion comes hot on the heels of the Superleague and Royal Antwerp judgments, and it is not the final case on competition law in football making its way through the system, as a string of cases involving players’ agents are still on their way (including Case C-209/23, RRC Sports). New issues are also arising, with the UK’s Premier League considering a salary cap for players.

Some view the AG’s Opinion as extreme, saying it encourages breach of contract. Elsewhere, Pablo Ibanez-Colomo questioned the AG’s application of the case-law on restrictions of competition by object. On the other hand, outside the world of competition law the problematic nature of Article 17 of the RSTP was already recognised by some as early as 2017 (see, e.g., here), although mainly on the basis of the free movement rules.

On the first criticism, this Opinion is not about individual breaches of contract and would not apply to a club exercising those rights in court or arbitration. It does not affect any individual rights under contract law. Rather, the Opinion is about a general FIFA rule that applies across the board to all professional football clubs and all professional players, which as the first instance court held, “boils down … to preventing a worker dismissed by his employer – even if it is due to his behaviour – to find a new job” (translation from the excellent 2017 Asser blog on the case). Moreover, even the mere existence of a dispute, in which the player’s position may well have merit, can lead to an ITC being withheld. To hold the view that such rules are “draconian”, as the AG does, does not amount to encouraging breaches of contract.

As for the AG’s object analysis, it is important to pause on the concept of a “decision by an association of undertakings”. Ultimately, this concept is there to ensure that Article 101 catches rules and recommendations from the association that coordinate the conduct of undertakings who are often each other’s competitors (see, in effect, Anic, para 131). Where the market relates to the recruitment of players, football clubs are certainly each other’s competitors. Rules set by FIFA can affect both the competing purchasers (the clubs) and the suppliers (the players) on that market. The RSTP rules achieve the same outcome as a joint understanding or “meeting of minds” between the clubs not to poach each other’s players except through mutual agreement. When a decision by an association of undertakings achieves the same outcome as an anti-competitive agreement or concerted practice, it is usually prohibited under Article 101.

The defence that the RSTP rules seek to instil “contractual stability” in football may not save them. Having a laudable objective whilst restricting competition is not a defence, as members of the Irish beef industry will know. The RSTP rules must be assessed on their wording and the objectives they intend to attain. It is tenable for the AG to hold that a general rule designed to deter clubs and “send a chill down each player’s spine” pursues an anti-competitive objective in the context of football, where recruitment of players is an essential parameter of competition. The alternative would be that a group of employers would be allowed to come together and agree that they not recruit from each other’s staff unless they can reach mutual understanding on a fee. This eliminates agency on the part of the worker who is not a good, but an individual who can make their own decisions as to their contractual rights and obligations.

Some rules are so likely to have negative effects that it is redundant to prove that they have actual effects on the market (Cartes Bancaires). The AG’s view is that the RSTP provisions are a form of coordination between the clubs (in the form of a decision by an association of undertakings) that is so likely to send a chill down players’ spines that it is not necessary to prove that they actually did so.

Where next?

At the end of the day, the CJEU will have the final say in this matter. If it agrees with the AG, the RSTP rules will fall at a hurdle similar to the Superleague case. Both cases show a desire on the part of football associations to curb excesses, which is in principle good. However, in attempting to do so, rules have come out too heavy-handed, lacking in nuance, and with too few safeguards, which makes them vulnerable to challenge under the competition rules, particularly where players are seen as an essential input for clubs. To avoid this, associations must ensure that their rules are fair, reasonable and non-discriminatory, meet the proportionality criteria, and provide sufficient procedural safeguards to deal with the specific facts of individual cases.