Player Contracts: Football transfers v European Union law: analysis

FIFPro’s recent challenge to the international football transfer system has highlighted that there are a number of issues with the compatibility of the current system with European Law. Ifeanyi Odogwu, a Barrister with Garden Court Chambers, examines FIFPro’s challenge in the light of previous challenges to the international transfer system based on its incompatibility with EU law, and assesses some of the issues that need to be considered.

With the January transfer window closed, the latest criticism of the football transfer system is timely and poses difficult questions for the sport’s governing bodies in relation to compatibility with EU law. FIFPro, the international players’ union, recently released a scathing statement on football transfer policy, announcing a series of challenges aimed at reforming the global transfer system and ‘the current economic make-up’ of the professional game1. The influential body is campaigning for employment rights for players akin to those in other professions; a system in which players can move between clubs after handing in their request and working a contracted notice period.

“The transfer system has always and continues by definition to be built on the back of our members’ rights as workers and human beings,” said FIFPro President, Philippe Piat. “FIFPro will not stand by and watch from the sidelines as football players’ rights around the world are systemically disrespected and the football industry dismantles itself…Football players are workers and only when they are able to enjoy the rights enshrined in law and enjoyed by all other workers, will FIFPro be satisfied.”

His strong comments spark the debate once again about football and human rights, in particular the freedom of movement of workers within the EU and competition law.

EU law in football

The fundamental freedoms guaranteed by the European Union include the right to free movement of workers2. The establishment of an internal market, ‘an area without internal frontiers in which the free movement of goods, persons, services and capital is ensured,’ is one of the principal tasks entrusted to the Union3. Every citizen of the European Union (including footballers) has the right to move and reside freely within the territory of the Member States.

EU law has played a leading role in the governance of football since the landmark Bosman ruling4, a decision concerning freedom of movement for workers which banned restrictions on foreign EU players within national leagues and allowed players within the EU to move to another club at the end of a contract without a transfer fee being paid. Over a decade later, Meca-Medina5 reaffirmed the position that sporting rules governing the economic aspects of sport can be challenged under EU law. The Judgment stated:

‘…Thus, where a sporting activity takes the form of gainful employment or the provision of services for remuneration, which is true of the activities of semi-professional or professional sportsmen, it falls, more specifically, within the scope of Article 39 EC et seq. or Article 49 EC et seq. In light of all of these considerations, it is apparent that the mere fact that a rule is purely sporting in nature does not have the effect of removing from the scope of the Treaty the person engaging in the activity governed by that rule or the body which has laid it down. If the sporting activity in question falls within the scope of the Treaty, the conditions for engaging in it are then subject to all the obligations which result from the various provisions of the Treaty. It follows that the rules which govern that activity must satisfy the requirements of those provisions which, in particular, seek to ensure freedom of movement for workers, freedom of establishment, freedom to provide services, or competition6.’

Despite those rulings, the rules of the game – particularly around the transfer of players – still appear to sit uneasily with the principles enshrined by EU law. Professional transfers of players are regulated by international sports governing bodies. The FIFA Regulations on the Status and Transfer of Players7 are, to a large extent, an informal agreement between FIFA, UEFA and the European Commission which grants FIFA an extensive autonomy for the self-regulation of transfers, a fundamental characteristic of sport as compared to other economic and social activities. The Rules directly impede the freedom of players to move. For example, they establish transfer fees between clubs; a transfer window which prohibits transfer activity outside of specific periods – meaning players can only move clubs and ply their trade elsewhere at certain times during the football calendar; and imposes the payment of training compensation on clubs purchasing young players.

The tension between football transfers and EC law was illustrated by the Court of Arbitration for Sport’s (CAS) ruling in Webster8 on Article 17 of the FIFA Regulations. It is a decision Sepp Blatter, the President of FIFA, labelled “very damaging” at the time9. Article 17 applies to the termination of a contract without just cause between a football player and a football club. In particular, it seeks to set out the framework within which the compensation figure a player must pay if they breach their contract will be calculated. The case concerned the attempt by a Scottish player to end his contract with Scottish club Heart of Midlothian and move to Wigan Athletic in the English Premiership. CAS ultimately decided that he need only pay nominal compensation to Hearts for the breach. The case was widely viewed at the time as signalling a dramatic increase in the power of players to terminate contracts and move to new clubs. The decision was criticised by representatives of football clubs, but welcomed by player representation organisations. A representative of FIFPro said: “Article 17 gives footballers the sort of employee rights that anyone else would expect in the workplace10.”

The position soon changed. In May 2009, one year after Webster, CAS published the decision in Matuzalem11. This case also came down in favour of the player in an Article 17 dispute, however, this time the compensation calculation was significantly more generous12. Interestingly, the court stated that compensation will be assessed on the facts of each case and that the specificity of sport required that awards reflect the special circumstances of employment within football. Matuzalem shifted the balance of power back to the football club from the players on the issue of free movement. Thus, Article 17 has so far not had the enormous impact on the transfer market as first anticipated.

UEFA’s Financial Fair Play regulations (FFP), which impose various financial rules on football clubs including the requirement to break-even, also have a direct effect on the transfer system. There have been similar grievances raised about whether the FFP infringe EU law. Lawyer Jean Louis-Dupont (incidentally, the same lawyer who acted for Belgian player Jean-Marc Bosman) lodged a complaint with the European Commission last year that the FFP infringe free movement of capital (as far as club owners are concerned); free movement of workers (players); and free movement of services (player agents)13.

In addition, there is a debate about UEFA’s ‘Home Grown Player’ (HGP) rule. The HGP rule requires clubs to have a minimum number of ‘home-grown players’ in their squads14. Many other sport federations have adopted similar ‘home-grown player’ rules at the European or national level which again could constitute a restriction to the free movement of sportsmen and women. The European Commission has identified a number of potential infringements of EU law, stating that: ‘it cannot be categorically established that the restrictive effects of the HGP rule on the free movement of workers are proportionate to the very limited benefits of the HGP for competitive balance and the training and development of young players15.’

Implications of FIFPro’s challenge

It would appear that FIFPro does have just cause to pursue a reform of the transfer rules because they restrict free movement of players. However, the major difficulty in its challenge will be the court’s view of sports’ specificities and the justification for exception from the rights and freedoms enjoyed by other workers in the EU. Sport’s ‘specificity’ has been recognised by CAS and the Court of Justice of the European Union (CJEU), making it a special case in comparison to other industries. It has been considered to be deserving of specific treatment in the implementation of EU law, which reinforces the autonomy of the governing bodies.

In 2007, the European Commission issued a White Paper on Sport16, in which it recognised the distinguishing aspect of disputes in a sporting context, stating: ‘The case law of the European courts and decisions of the European Commission show that the specificity of sport has been recognised and taken into account. They also provide guidance on how EU law applies to sport. In line with established case law, the specificity of sport will continue to be recognised, but it cannot be construed so as to justify a general exemption from the application of EU law17.’

The key questions in relation to infringement are proportionality and whether the restrictive rules pursue a legitimate aim. It has been said that the imposition of transfer windows helps to stop larger clubs from having an unfair advantage, as they have more financial resources than other clubs to buy new players at any stage of the football season. Likewise, it has been said that compensation to feeder clubs for the training and development of talented young players should be encouraged as it ensures that smaller clubs are rewarded for their key role in the development process and prevents the bigger clubs from sweeping up all the talent. The CJEU’s well-considered judgment in the Bernard ruling18 stated:

‘In the court’s view, the prospect of receiving training fees is likely to encourage football clubs to seek new talent and train young players. A scheme providing for the payment of compensation for training where a young player, at the end of his training, signs a professional contract with a club other than the one which trained him can, in principle, be justified by the objective of encouraging the recruitment and training of young players.’

Similarly, the FFP regulations aim to create a more even playing field between clubs that rely on breaking even in their profit and loss account as opposed to those backed by the plentiful resources of super-rich owners. The European Commission has already given its support for the FFP rules19. To remove the restrictive regulations would create a distortion in competition, it is argued. However, conversely, it has been argued that the FFP do more to retain the dominance of clubs with super-rich owners, by preventing a new owner buying a struggling club and bankrolling it to success20.

The potential impact of a successful FIFPro challenge is that it could potentially create an even greater gulf between the top clubs and the rest of the football league. Instead of the obligation to buy out contracts from poorer clubs at an additional premium on purchase price, if there was no transfer market regulated by the Rules, the richest would instead attract players by offering them larger pay packages. Budgets currently ring-fenced for transfers will instead be allocated to wages and bonuses. Player wages in the top leagues would steadily rise and, conversely, player loyalty will diminish.

Conclusion

Despite the autonomy of sporting rules, it is clear that they are not exempt from the scrutiny of the courts and must comply with EU law. If legal challenges are brought, it is likely that the governing bodies will seek to justify their rules by reference to the legitimate aims of competitive sport and the continued development of young athletes.

There is something to be said for the rights and freedoms of the less high profile players, however. Part of FIFPro’s challenge is to ensure all professional players cannot unfairly have their contract terminated and must be paid on time, which they maintain are pertinent problems for many of the 65,000 players they represent around the world. In 2012, The European Commission published an in-depth independent study on transfers in sport, which itself concluded that there was a competitive imbalance between the haves and have-nots, which the current transfer rules do not effectively address21. Football clubs spend around £3 billion a year on player transfers, but very little of this money trickles down to smaller clubs or the amateur game. FIFPro’s involvement in any reform alongside football’s governing bodies should be welcomed, but the debate about infringement of EU law must be balanced against the recognised specificity of the football industry.

This article was originally published in World Sports Law Report Volume 12 Issue 2, February 2014. The original can be accessed here.

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