Category Archives: Free movement

FIFPro challenge the football transfer system

FIFPRO2

By Nick De Marco & Dr Alex Mills

As the curtains are drawn on the panic-buying of the January transfer window for another year, it is once again difficult not to reflect critically on the football transfer system. In the Premier League alone, more than £1bn has been spent on football transfers during the 2015-16 season – a staggering figure, and a new record. This is not just a European phenomenon – teams in the Chinese Super League have also spent unprecedented money in the current transfer window, reflecting the incredible rise in football business in the country, even outspending the Premier League during this period. Much of the increase in transfer spending can be attributed to the increasing popularity and commercial success of football around the world, particularly the new broadcasting rights deal in the case of the Premier League, but some have argued argued that the extraordinary inflation in transfer fees is a sign that the system is broken.

One organisation which is firmly in this camp is FIFPro, the union for professional footballers, which represents more than 65,000 players from around the world. In September 2015, FIFPro lodged a formal complaint with the Directorate General for Competition of the European Commission, against FIFA and its member associations, challenging the global transfer market system for football. Here we discuss the background to this challenge and the issues raised by it, before considering its likely outcomes and implications.

The story of the modern transfer system begins with the famous Bosman ruling (C-415/93) of the European Court of Justice in 1995. Bosman, a player registered with Liège in Belgium, wanted a transfer to Dunkerque in France. Although Bosman was out of contract, the rules at the time permitted Liege to refuse the transfer unless Dunkerque met their transfer fee demand. The ECJ held that this constituted a prohibited restriction on the free movement of workers in the European Union. One key consequence of this decision is that a player can now transfer for free at the end of their contract, often known as a ‘Bosman transfer’. This feature of the modern transfer rules is an important factor in the way values in the transfer market are calculated today. Players may also use the threat of running down their contract and thus reducing their transfer value as a means of leveraging their club for a new contract and salary increase.

Following the Bosman ruling, there was talk of abolition of the transfer system. The European Commission’s then Competition Commissioner, Mario Monti, said “International transfer systems based on arbitrarily calculated fees that bear no relation to training costs should be prohibited, regardless of the nationality of the player and whether the transfer takes place during or at the end of the contractual period.” But a political compromise was then fashioned following an informal agreement between the European Commission, FIFA and UEFA, and the modern football transfer system established in 2001. The rules are set out in the FIFA Regulations on the Status and Transfer of Players (RSTP). As presently established, the rules provide that contracts may only be a maximum of 5 years in length, or 3 years for players aged 18 or under (Art. 18(2)). They may only be terminated for just cause or by mutual agreement (Arts. 13 and 14) – hence, the transfer of a player under contract may not take place without the agreement of the player and both clubs. A player out of contract may transfer clubs without any transfer fee being payable, but an agreement to sign for another club may only be entered into in the last six months of a contract or after its expiry (Art. 18(3)). However, perhaps most critically, a player who terminates an existing contract without just cause is liable to pay compensation (Art. 17(1)), jointly with any new club for whom the player has signed (Art. 17(2)), and will also be subject to sporting sanctions (including a ban on playing for any team) if the wrongful termination occurs in the first two or three years of the contract, depending on the age of the player (Art. 17(3)). FIFA guidelines suggest that a failure to pay a player would only be just cause for that player to terminate the contract if payment was not made for a period of more than three months. If an ‘established professional’ plays in fewer than ten percent of the official matches for their club during the course of a season, there is also the possibility for that player to terminate their contract for ‘sporting just cause’ (Art.15).

The amount of compensation payable if a player terminates a contract without just cause has been a controversial question. The Court of Arbitration for Sport (CAS) in Webster (CAS 2007/A/1298/1299/1300) rejected the argument that the player should be liable for their full market value, holding that “giving clubs a regulatory right to the market value of players and allowing lost profits to be claimed in such manner would in effect bring the system partially back to the pre-Bosman days”. The damages were instead calculated based on the “outstanding remuneration due until expiry of the term of the contract”. This decision caused something of an outcry from many clubs, as it was felt that it would enable players effectively to buy themselves out of their contracts too easily. In Matuzalem (CAS 2008/A/159), however, the CAS held that a player who had terminated his contract unilaterally without cause was liable for an amount based on his replacement value on the transfer market (more than €11m). Matuzalem was unable to pay this amount and he was consequently subject to a worldwide playing ban. The decision to prohibit him from playing was later annulled by the Swiss courts for violation of public policy (essentially because he could never make payment if he could never work), but the case nevertheless established that the cost to a player of unilaterally terminating their contract without just cause would be strongly connected to the player’s value in the transfer fee market.

So what are the competition law issues raised by this system? The FIFPro complaint is directed to Articles 101 and 102 of the Treaty on the Functioning of the European Union, which prohibit agreements, decisions and practices limiting competition, as well as the abuse of a dominant market position. The argument is supported by a Study commissioned by FIFPro and carried out by Stefan Szymanski, a Professor of Sports Management who is otherwise perhaps best known as co-author of the book ‘Soccernomics’. FIFA is clearly in a dominant market position in relation to football, and there is no doubt that the RSTP limits competition because of the restrictions it places on freedom of contract. The FIFPro complaint highlights three features of the RSTP which operate as restrictions on the labour market – (i) the calculation of compensation if a player terminates their contract without cause (Art. 17(1)); (ii) the imposition of a playing ban for the wrongful termination of a contract by a player during the first two or three years of a contract (Art. 17(3)); (iii) the rule that a contract with a different club may only be entered into in the final six months of a contract or after it has expired (Art. 18(3)).

The relationship between sport and competition law has, however, always presented a particularly complex problem. Sporting teams have an important interest in contractual stability – knowing that players signed for a period of time will be unable to leave, even if a wealthier team offers to buy out their contract. There is also an argument that contractual stability benefits players, because the contract of an injured player cannot be terminated by their club. The objective of contractual stability is, however, at least apparently in tension with a free and competitive labour market, and thus it has long been understood that sport requires particular treatment. Article 17(1) of the RSTP indeed expressly requires that “the specificity of sport” be taken into account in calculating compensation for wrongful termination of contract – this was one of the factors leading the CAS in Matuzalem to award such substantial damages. FIFPro’s key argument is therefore that these aspects of the RSTP offer sport too much particular treatment, to the disadvantage of the professional footballers whose labour market mobility is reduced.

A second aspect of the FIFPro argument is the contention that the scale of transfer fees means that only the few wealthiest clubs are able to compete for the elite footballing talent. Although the figures involved may be large, in practice, the argument goes, these clubs are both buying and selling players at this scale, and are thereby (in conjunction with Financial Fair Play regulations) effectively pricing other clubs out of the market for the best players. The effect of this practice is both to reduce competition, leading to the dominance of the same handful of clubs each year (Leicester City’s performance this season being a notable exception) and thereby to reduce the size of the labour market for players to compete at the highest levels of the game. However, it is not only transfer fees that separate the rich clubs from the rest. The largest expenditure of most clubs is usually on players’ wages. Without some form of wage cap or collective agreement (which Prof. Szymanski appears to advocate but which could itself, no doubt, be subject to competition law challenge) it could be argued that rather than create a more level playing field the abolition of football transfer fees might cause more harm to the poorer selling clubs who are at least able to be compensated for losing players to the richer clubs that can afford higher wages and transfer fees.

It is extremely difficult to imagine that the European Commission will require the dismantling of the transfer system altogether, or the abolition of transfer fees. Indeed, the Commission may well simply refuse to entertain the complaint altogether, on the basis that it falls outside its area of interest and is better pursued within national courts. Much will depend on the distinction which the Commission recently announced defines its area of interest in sport; is the complaint simply a dispute “related to governance” or “the application of sporting rules to individuals” or is it, perhaps more likely considering the economic effect of the transfer system and the way it serves to bind a player to a club, a complaint about anticompetitive agreements and the abuse of dominant market positions which can act to prevent a player from taking part in sport?

However, should the Commission (or others as a result of FIFPro’s complaint and associated campaign) determine that the system is not functioning in a satisfactory way, there are a number of modifications which could be made to the rules which would have the effect of increasing the flexibility of the labour market and thus would be likely to reduce transfer fees, with the money most likely to go instead to player salaries. For example, the maximum length of contracts could be reduced from five years to four, giving players more opportunity to obtain or at least threaten a free transfer, or the damages payable for the termination of the contract by a player without just cause could be reduced, overriding the Matuzalem decision. One key concern which is likely to be raised is the risk that reductions in transfer fees would reduce the incentives for clubs to develop young players, although the RSTP rules do provide for training compensation (Art. 20) and a solidarity mechanism (Art. 21), each of which secures financial support for clubs which have contributed to a player’s training. If changes were to be made to the rules regarding contracts and transfers, these may need to be counterbalanced with adjustments to these provisions – such adjustments may in any case be considered as a means of addressing competitiveness. The consequences of all such changes would, of course, be difficult to predict with complete confidence, and any modifications of the FIFA RSTP would require long and complex negotiations with a range of stakeholders.

When one reads about the salaries of the highest paid footballers, some might find it difficult to be entirely sympathetic to the argument that the transfer system is harmful to the position of professional footballers. But the FIFPro challenge is less about the position of the elite and more about the average professional footballer around the world, most of whom are on salaries much closer to those of ordinary workers, and some of whom are badly treated, regularly not paid by their clubs, and yet unable to move on. If changes to the rules governing the transfer market were to reduce the amount of money spent on transfer fees, increase freedom and job security for more players, and promote greater competition between clubs, such a development would be likely to be welcomed not only by lawyers, but also by most football players and fans around the world.

Nick De Marco is a barrister at Blackstone Chambers specialising in sports law and disputes in football. He was a recent guest speaker at the FIFPro Legal Legends international conference and regularly represents the English Professional Footballers Association.  Dr Alex Mills is a member of Blackstone Chambers’ Academic Research Panel and the UCL Faculty of Laws.

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The ECJ on the Bus Lane Wars

Minicab giant Addison Lee recently suffered another defeat in the latest battle in the bus lane wars – this time at the ECJ. The outcome is no great surprise, but the Court’s approach to the question of when inter-state trade is affected is likely to be of broader interest. Continue reading

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Murphy and pay-TV: an update

A version of the blog post below was first published on the Blackstone Chambers sports law blog: http://sportslawbulletin.org/.

Back in November I blogged on a Financial Times report that the European Commission was about to commence an antitrust investigation into pay-TV services.  That investigation was formally announced last Monday, in a statement by Joaquín Almunia, Commission VP for Competition Policy. Continue reading

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Murphy, round 2: does exclusive territorial licensing of pay-TV breach EU competition law?

According to a report in the Financial Times last weekend, the European Commission is on the verge of commencing a formal investigation into potentially anti-competitive restrictions in pay-TV licensing arrangements.  Such an investigation could have significant ramifications for any owners of television rights in sports fixtures (or other content) who seek to maximise their revenues by licensing on an exclusive territorial basis.

The last time similar issues came before the Court of Justice, a rights owner rather than the Commission was on the offensive.  In Joined Cases C-403/08 and C-429/08, Football Association Premier League Ltd v QC Leisure, Murphy v Media Protection Services Ltd [2012] 1 CMLR 29, FAPL was attempting to use criminal and civil law provisions of the Copyright, Designs and Patents Act 1988 to enforce its model of exclusive territorial licensing of satellite TV rights for the Premier League.  Mrs Murphy, a publican who had used an illicitly obtained satellite decoder card to show Greek satellite broadcasts of Premier League matches in her Portsmouth pub, famously persuaded the Court of Justice that national legislation prohibiting the import, sale and use of satellite decoder cards from elsewhere in the EU contravenes the free movement rules in the EU Treaties, and that restrictions such as those in the licence agreements between FAPL and its satellite broadcasters, obliging the licensee not to provide decoding devices outside its territory, contravene Article 101 TFEU.  Her appeal against conviction (for the offence of fraudulently receiving a programme included in a broadcasting service) was successful.  Yet FAPL snatched victory from the jaws of this defeat, establishing in the QC Leisure litigation that activities such as Mrs Murphy’s are actionable as copyright infringement. Continue reading

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Competition round-up: Summer 2013

It is time for what has become the Competition Bulletin’s regular half-yearly update of EU and UK competition law developments. (For our previous round-ups see here).

Thinking big Continue reading

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Price-fixing by the State: a minimum unit price for alcohol

For a number of years concerns have been expressed over excessive levels of alcohol consumption and the effect this has on both public health and public order. There is a clear relationship between the price of alcohol and the amount of alcohol consumed. On 3 May 2013, the Court of Session ruled that a 50 pence per unit minimum alcohol price which had been imposed by the Scottish Parliament was compatible with EU law. In this blog I argue that, in reaching his conclusion, Lord Doherty misapplied the proportionality test. Continue reading

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Competition round-up: Summer 2012

As most of us are now returned from our summer holidays, I thought I’d take advantage of the ‘back to school’ feeling with a round-up of the most significant competition cases since Easter. This also provides a good excuse to highlight the best blogs from the Competition Bulletin’s first couple of months.

I’ll start with a case that should, but probably won’t, make the law reports: the decision of the Appeal Panel of the Rugby Football Union, which held in an appeal by London Welsh that the RFU rules on primacy of tenure are contrary to Articles 101 and 102 TFEU and therefore void. The case is notable not only for the finding itself, but also because it was heard and decided so quickly – arguments which would take days in the High Court (and probably weeks in the CAT) were heard over the course of a day, and the 38-page judgment completed the following day. James Segan blogged on the case here.

There has been much good news for claimants in follow-on damages claims. Continue reading

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