LIBOR transition: government proposes legislation to deal with 'tough legacy' contracts
Out-Law Analysis | 22 Sep 2015 | 5:22 pm | 8 min. read
Players union FIFPro has filed a competition law complaint against FIFA, the world governing body for football, before the European Commission. It has claimed that the player transfer market system, which is governed by FIFA regulations, is "anti-competitive, unjustified and illegal".
The Commission is not obliged to investigate FIFPro's complaint but, should it do so, there are previous court rulings and research which might influence how it approaches the case.
FIFPro's complaint in more detail
FIFPro has specifically argued that "the transfer regulations prevent clubs from fairly competing on the market to acquire sporting talent, harming the interests of players, small and medium sized professional teams and their supporters".
The FIFA Regulations on the Status and Transfer of Players (RSTP) (40-page / 467KB PDF) "fuels and sustains increasing competitive and financial disparity, invites commercial abuse by third party owners and agents and fails to protect players against abuses of their labour contracts via systematic non-payment", it said.
FIFPro has taken issue with clubs asking for "highly-inflated transfer fees" and argued that the money generated largely circulates between the biggest clubs and does not "trickle down" to others. The regime, as the FIFPro argument goes, is to the benefit of the few, such as major clubs, agents and third party owners, and disadvantages the many in a way which breaches EU competition rules.
In addition to questioning whether the transfer system abides by EU competition laws, FIFPro has challenged whether the FIFA regulations respect the EU principle which provides for the free movement of people. It has argued that there is an "equally restrictive transfer market" now in place as there was in 1995 when footballer Jean-Marc Bosman successfully challenged the transfer system that was in place then.
The current issue stems from "a severe imbalance in the regulations ... which allows clubs to exploit players who are under contract", FIFPro said.
EU law and comparisons with the Bosman case
There are some major differences between the case brought by FIFPro and the Bosman case.
First, the Bosman case started life in the Belgian courts and resulted in a reference to the Court of Justice for the EU (CJEU) for a preliminary ruling on the application of EU law to the transfer rules. In contrast, FIFPro has made a complaint to the European Commission, which has no obligation to open a formal investigation.
Second, FIFPro has stated that the complaint to the Commission focusses on competition law and, although competition law arguments were raised in the Bosman case, the CJEU's ruling in that case focussed on the infringement of EU principles which protect the freedom of movement of workers. Those principles are enshrined in the Treaty on the Functioning of the European Union (TFEU).
The TFEU also contains overarching competition laws which prohibit anti-competitive agreements or decisions by associations of undertakings which have an appreciable anti-competitive object or effect on a market as well as the abuse of monopoly power.
The Commission will open a formal investigation into the FIFPro complaint only if it considers that there are reasonable grounds for suspecting an infringement. FIFPro would need to demonstrate that the current transfer rules have a restrictive object or effect on the football/players market and that they should not benefit from the sporting exception from the application of the competition law rules – known as the 'specificity of sport'.
Rules of sporting bodies which are of a purely sporting interest and have nothing to do with economic activity can fall outside the scope of the competition rules altogether. This is subject to a proportionality test; any restrictions imposed must be "limited to what is necessary to ensure the proper conduct of competitive sport", according to CJEU case law.
In the Bosman case, the CJEU acknowledged that the need to maintain a financial and competitive balance between clubs and support the search for talent and training of young players was a legitimate objective of football rules. However, the CJEU considered that the transfer rules, as they were then, did not help to achieve a competitive balance and determined that the richest clubs would still secure the best players under the pre-Bosman system.
Prior to the Bosman case, clubs were entitled to receive transfer fees for players when they transferred to another club at the end of their contracts. The CJEU, in considering Bosman's case, was sceptical that the prospect of receiving transfer fees would be a decisive factor in encouraging recruitment and training of young players by smaller clubs.
However, in 2000, in a case which concerned a challenge brought by Finnish basketball player Jyri Lehtonen against rules that prevented his participation in Belgium national championship matches, the CJEU found that those rules relating to the regulation of transfer periods in basketball had a legitimate sporting objective, aimed at protecting "the proper functioning of the championship as a whole".
The Regulations for the Status and Transfer of Players
After the Bosman ruling, FIFA entered into a settlement with the European Commission which changed the player transfer system to the framework we are familiar with today. The Regulations for the Status and Transfer of Players (RSTP) set in 2001, and updated in 2004 and 2007, mean that players under contract with clubs can generally only be transferred to other clubs within two 'transfer windows' in a season.
The RSTP regime also introduced mechanisms designed to ensure that clubs involved in the training and education of players are compensated when those players move to other clubs. One set of rules under the RSTP framework places a general requirement on buying clubs to pay training compensation fees where they acquire players under 23 years of age from other clubs.
A solidarity mechanism is also provided for and means that clubs involved in a player's development are eligible for a proportion of the training compensation due from that player's transfer between two other clubs.
The thrust of FIFPro's competition law argument is that the current system is anti-competitive because it unfairly discriminates in favour of the bigger, richer clubs and the solidarity mechanism is not effective enough to combat this.
If it can be shown that the current system has this effect, i.e. that it puts smaller clubs at a disadvantage, it may be difficult to justify the rules on purely supporting grounds, for example by extolling the benefits the rules deliver for the welfare of players, of solidarity and competitive balance.
However, bigger clubs with access to bigger revenues, whether through higher gate receipts, lucrative media rights deals or other commercial partnerships, will always be able to pay more for the best talent, whether in transfer fees or in salaries. It is therefore likely that if the Commission is concerned about competitive balance it will look at remodelling the redistribution mechanism rather than placing a ban on transfer fees completely.
Is Commission action likely?
The level of transfer fees being paid for players has been rising in recent years. At the time of the Bosman ruling in 1995, the largest single transfer fee paid for one player was the £13 million AC Milan gave Torino for Gianluigi Lentini.
Since then, through transfers involving stars such as Alan Shearer, Zinedine Zidane, Cristiano Ronaldo and most recently Gareth Bale, the world record transfer fee has risen to £85.3m. Inflation in the prices paid for players in the market as a whole has been spurred by increases in the valuation of media rights deals over the period.
A study conducted on behalf of the European Commission (11-page / 305KB PDF) published in 2013 found that there had been there were more than three times the number of player transfers in 2011 as there were in 1995 and that the total value of transfer fees for players in 2011 compared to 1995 was 7.4 times higher.
The report identified a need to "address competitive imbalance" and proposed limiting transfer fees that can be paid for players. Research and advisory company KEA and the Centre for the Law and Economics of Sport, which produced the paper, also recommended the introduction of a 'fair play levy' on transfer fees beyond a certain amount as a way of ensuring wealth redistribution among clubs. They also suggested that the level of solidarity payments payable to clubs involved in players' development should be increased.
The Commission will have this research and the general trend of the increasing level of transfer fees in mind when it examines whether to advance with an examination of FIFPro's case. It is likely to have the appetite to investigate the complaint, at least informally.
This would contrast to the approach it has taken in relation to the challenge raised by football agent Daniel Striani against the 'Financial Fair Play' (FFP) rules put in place by European football's governing body UEFA. The Commission has been openly supportive of FFP and was not inclined to investigate Striani's complaint that the rules, designed to curb overspending by clubs, breach the EU's competition rules. In fact, the Commission entered into a formal "cooperation agreement" with UEFA on measures to promote financial stability in football, among other topics, which could also impact on the way the Commission approaches the FIFPro complaint.
It is likely that the FIFPro complaint will lead to some protected settlement discussions, which is what happened in 2001 when UEFA, FIFA and the Commission came to an arrangement which underpins the current system.
The Commission is likely to send information requests to organisations put forward by FIFPro but anyone can put in a submission.
It remains a possibility that the case will reach the courts and the CJEU specifically for a determinative ruling on the compatibility of the RSTP regime with EU law.
Is change justified and what would its impact be?
Liberalisation of the player transfer market may have unforeseen consequences. It could impact on the financial position of clubs and financing of transfers. Uncertainty of outcome is central to people's enjoyment of sport. Measures that promote competition should be welcomed, but it is questionable whether reforms to the status quo would deliver positive changes for players whilst improving the ability of smaller clubs to compete for success with the major clubs that have been traditionally dominant.
The dynamics of the football transfer system are such that a cap on transfer fees would be unlikely to solve any perceived or actual competition concerns. Important differentiators for clubs may no longer be what they can outlay in transfer fees but what they can afford to pay in salaries. In those circumstances the biggest clubs with access to the greatest revenues will still prevail in attracting talent, only there will be artificial restrictions in place across the remainder of the market to no great end.
Altering redistribution fees payable for transfers would also not reconcile with the fact that many transfers of players take place without any exchange of transfer fees at all.
Footballers under contract with clubs already enjoy a large degree of certainty and flexibility under the current transfer system. Indeed, it is only in circumstances where players and their agents will benefit, that transfers tend to take place. Players have the choice to leave or stay when they attract the interest of rival clubs because clubs cannot compel players to move on where they are under contract.
Players have the choice to leave or stay when they attract the interest of rival clubs because clubs cannot compel players to move on where they are under contract.
Changing the status quo would, without question, be very disruptive, not least as the European player transfer system operates, and owes much of its success, or at least its efficacy for clubs, to a number of accepted norms, including in particular the defined time periods offered through the existing transfer window arrangements. It is hard to see how this disruption would be justified given the unsatisfactory nature of the potential solutions.
LIBOR transition: government proposes legislation to deal with 'tough legacy' contracts