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UNDERSTAND THE RULES OF THE GAME

An explanation of FIFPro’s challenge to the football transfer system


Published 17 February 2016 | Authored 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 that the extraordinary inflation in transfer fees is a sign that the system is broken.

One organisation that 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 complaint1 with the Directorate General for Competition of the European Commission, against FIFA and its member associations, challenging the global transfer market system for football. This article discusses the background to this challenge and the issues raised by it, before considering its likely outcomes and implications.

 

Background to the transfer system

The story of the modern transfer system begins with the famous Bosman ruling2 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 guidelines3suggest 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 Webster4 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,5 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 courts6 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.

Competition law issues

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 Study7 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’.8

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:

  1. the calculation of compensation if a player terminates their contract without cause (Art. 17(1));
  2. 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)); and
  3. (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 announced9 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.

To subscribe to the Blackstone Chambers sports law updates, which includes additional blogs not on LawInSport, go to https://sportslawbulletin.org/

 

References


  1. ‘FIFPro legal action against FIFA transfer system’, Fifpro.com, 18 September 2015, last viewed 15 Feb 2016, https://www.fifpro.org/en/news/fifpro-takes-legal-action-against-fifa-transfer-system
  2. C-415/93,https://eur-lex.europa.eu/legal-content/EN/TXT/?uri=CELEX%3A61993CJ0415
  3. Commentary on the Regulations for the Status and Transfer of Players, https://resources.fifa.com/mm/document/affederation/administration/51/56/07/transfer_commentary_06_en_1843.pdf
  4. CAS 2007/A/1298/1299/1300, https://jurisprudence.tas-cas.org/sites/CaseLaw/Shared Documents/1298, 1299, 1300.pdf
  5. Matuzalem (CAS 2008/A/159) https://arbitration.kiev.ua/uploads/kucher/1519; 1520.pdf
  6. 4A_558/20111, Judgment of March 27, 2012, First Civil Law Court https://www.swissarbitrationdecisions.com/sites/default/files/27 mars 2012 4A 558 2011.pdf (last accessed 16 Feb 2016)
  7. ‘Szymanski study "uncomfortable reading"’, FIFPro.com, 15 October 2015, last viewed 15 Feb 2016, https://www.fifpro.org/en/news/economic-report-makes-uncomfortable-reading
  8. Soccernomics Paperback – 24 Apr 2014 by Simon Kuper  (Author), Stefan Szymanski  (Author), https://www.amazon.co.uk/Soccernomics-Simon-Kuper/dp/0007586523
  9. ‘Antitrust: Commission opens formal investigation into International Skating Union's eligibility rules,’ Europa.eu, 5 Oct 2015, last viewed 15 Feb 2015, https://europa.eu/rapid/press-release_IP-15-5771_en.htm

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About the Author

Nick De Marco

Nick De Marco

Nick is rated the leading junior barrister in Sports Law and is a member of Blackstone Chambers.

He has advised and acted for a number of sports governing bodies, athletes, most Premier League football clubs and many world-class football players in commercial and regulatory disputes.

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Dr Alex Mills

Dr Alex Mills

Dr Alex Mills is a member of Blackstone Chambers’ Academic Research and a Reader in Public and Private International Law at UCL Faculty of Laws. He joined UCL from the University of Cambridge, where he was a Fellow and College Lecturer at Selwyn College and an Affiliated Lecturer at the Faculty of Law.  Alex practised for three years as a solicitor at Mallesons Stephen Jaques (now King & Wood Mallesons) in Sydney before completing an LLM and a PhD in Law at Gonville and Caius College, University of Cambridge.

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