Stephen Weatherill, Somerville
College and Faculty of Law, Oxford University
Photo credit: Addesolen, via Wikimedia Commons
Introduction
‘Is this the end of football’s
transfer system?’ So shrieked the media in December 1995 when the Court of
Justice decided the Bosman
case (C-415/93). And the same question has now hit the headlines after the
Court’s ruling on 4 October 2024 in Diarra
(C-650/22). The answer was ‘no’ back in 1995. And the answer is still ‘no’
today.
The transfer system which
enmeshed Diarra and led to the litigation is exposed by the Court’s
judgment on 4 October as grossly deficient and incompatible with EU law. It
will need to be changed. But a system of sorts, specific to football, can
survive this judgment. And it is unlikely anything will happen quickly. It took
several years after the Bosman ruling for the system to be revised, and Bosman
was clearer on what needed to be changed – the exclusion of out-of-contract
players – than Diarra is. But there will need to be change. Most of all,
the system will need to be made less restrictive and the consequences of
unilateral breach of contract will need to be made more predictable.
The litigation
Diarra played for Lokomotiv
Moscow. A dispute arose. The club terminated his contract for reasons related
to his conduct and brought a claim for compensation before the Dispute
Resolution Chamber under FIFA’s Regulations on the Status and Transfer of
Players. The player counterclaimed. In the meantime he tried to find a new
club. Diarra’s claim which reached the Court in Luxembourg via a reference from
the cour d’appel de Mons in Belgium concerns his failure to find a new club.
Under the FIFA Regulations it was possible that the dispute with his old club
might, once finally resolved, have resulted in any new club being liable
alongside Diarra to pay compensation to Lokomotiv Moscow under the FIFA
Regulations. So, Diarra claimed, the transfer system obstructed his chances of
finding new employment. This, he also claimed, was not hypothetical. His
evidence included a concrete (and remarkably convenient) offer from Charleroi
which was stated to be subject to that club not being liable under the FIFA
Regulations – a proviso which FIFA refused to accept. So Diarra’s case was that
he had been treated by FIFA in breach of EU law – that the transfer system
operated as an obstacle to his free movement in violation of Article 45 TFEU
and as an anti-competitive practice incompatible with Article 101 TFEU.
The structure of the ruling
Much of the Diarra ruling
is entirely familiar and unsurprising to an EU internal market lawyer.
An obstacle to inter-State trade
within the meaning of Article
45 TFEU (on the free movement of workers) was found. FIFA’s rules, the
Court concluded, were liable to obstruct football players resident or working in
their Member State of origin who wish to work instead for a new club
established in the territory of another Member State by unilaterally
terminating their employment contract.
Similarly the presence of the key
ingredients of Article
101 TFEU (on competition law cartels) were quickly ticked off – FIFA falls
within the concept of an undertaking or association of undertakings, its
rules were a ‘decision by an association of undertakings’, and the matter
affected trade between Member States.
The sports-specific elements in
the ruling are also no surprise. The Court follows the model of its December
2023 ruling in the European
Superleague case (Case C-333/21), which is cited on 35 different
occasions, and this is plainly now the established model for the several cases
concerning the regulation of sport which are pending before it. So the Court
repeats its (silly and plain wrong) observation that certain specific rules
such as those relating to the exclusion of foreign players from the composition
of teams participating in competitions between national teams or to the setting
of the ranking criteria used to select athletes participating in competitions
which were adopted exclusively for reasons of a non-economic nature and relate
to matters relating solely to sport as such must be regarded as being unrelated
to any economic activity, and so untouched by EU law. But no harm is done
because in Diarra the Court quickly dismisses the notion that the
transfer system is ‘unrelated to any economic activity’, just as in the Superleague
case it had correctly refused to accept that UEFA’s rules on prior approval of
new competitions were extraneous to economic activity – and just as it should
also appreciate that rules on the composition of national teams and ranking criteria
have direct economic impact. EU law applies – the key issue is not using some
spurious ‘non-economic’ label to exclude EU law but rather how EU law applies
to practices with both sporting and economic motivations and effects.
Paragraphs 124-133 address ‘The
concept of conduct having as its “object” or “effect” the harm to competition’.
Nothing here will surprise anyone familiar with Superleague. If conduct is
found to have an anti-competitive object, it is not necessary to examine its
effect on competition; the concept of anticompetitive ‘object’ must be
interpreted strictly; it catches only practices which reveal a sufficient
degree of harm to competition for it to be possible to consider that an
examination of their effects is not necessary (and some such practices are
itemised); subjective intention is not decisive; one must examine the content, the
economic and legal context and the aims. Familiar fare from Superleague.
Moreover, and confirming the revolutionary turn taken by the Court in Superleague,
a practice may be excluded from the scope of Article 101(1) where justified by
the pursuit of, and necessary to achieve, legitimate objectives in the public
interest – but only where the practice exerts an anti-competitive effect, not
where it pursues an anti-competitive object. In the latter case only Article
101(3) may save the practice (paras 149-152). The decision in Meca-Medina
(Case C-519/04P), which envisaged (in short) a public interest/ legitimate
objective exclusion from the scope of Article 101(1) irrespective of whether
the challenged practice was a restriction on competition by object or by effect,
is banished – so much so that the case is not even cited in Diarra.
The incompatibility of the
challenged transfer system with EU law
The flaws in the transfer system,
on paper and in practice, are brutally listed by the Court. This leads it to
the finding that they violate both Article 45 and Article 101.
The Court does not deny that FIFA
has a legitimate role a regulator. In interpreting Article 45 it notes that the
rules may be appropriate as a means to achieve the objective of ensuring the
regularity of club football competitions and by contributing to maintaining a
certain degree of stability in the membership of the football clubs likely to
participate in those competitions (para 103). In similar vein, in examining
Article 101, it refers to the conditions under which professional football
clubs may compose the teams participating in such competitions and those in
which the players themselves may take part in them (para 143). It may be
legitimate for FIFA to seek to ensure the stability of the composition of the
squads of players during a given season, for example by prohibiting – as the
FIFA Regulations do – the unilateral termination of employment contracts during
the season (para 144).
But the Court’s detailed
assessment is damning.
Paragraphs 103-113 deal with compliance
with the principle of proportionality in the interpretation of Article 45. The
Court does not mince its words. The rules appear to go in several respects
beyond, and in some cases far beyond, what is necessary to attain their
objectives. They apply to players who have a relatively short career and
therefore the impact with typically be great. Compensation is payable by the
player in the event of unilateral termination of the employment contract
‘without just cause’, but that expression is not precisely defined in the
Regulations. Some criteria are, as the Court (rather gleefully, I suspect)
notes is admitted even in the official FIFA commentary, almost never applied in
practice, whereas others (such as the specificity of sport) have no precise
definition. This leads to discretionary and unpredictable implementation.
Absence of the necessary legal certainty is a central problem. Other criteria,
though more objective and verifiable, seem to go far beyond what is necessary.
This is especially so in relation to taking into account remuneration and costs
in calculating compensation due. The criteria governing compensation – the
Court notes drily – seem more attuned to preserving the financial interests of
clubs than to ensure the effective organisation of sporting competitions. The ‘sporting
sanction’ imposed on the new club, which operates on the basis of a presumption
of incitement, appears far removed from the demands of proportionality. The
same is true of the impact on the player.
It is a sorry list of
inadequacies. And it leads the Court to conclude that the proper conduct of
sporting competitions cannot provide a justification. The current transfer
system violates Article 45.
The examination conducted
pursuant to Article 101 has much in common with that presented in connection
with Article 45. The analysis begins at paragraph 134. The Court notes – in
line with its earlier remarks in the light of Article 45 – that the rules are general
and imprecise and that they are subject to discretionary implementation which
is unpredictable and difficult to control. So too they appear to allow
compensation to be set at a very high and dissuasive level.
Paragraph 138 draws on the Opinion
of Advocate General Szpunar, which itself was a savage indictment of FIFA’s
rules. It declares that the transfer system acts as a general and severe
restriction on competition between professional football clubs in the market
for recruitment of players. The system amounts to a ‘no-poaching’ agreement
between clubs which results in the artificial partitioning of national and
local markets, which – crucially – is to the benefit of football clubs (para 145).
This acts as a general, absolute and permanent prohibition on the unilateral
recruitment of players who are already engaged, which the Court treats as a
clear restriction on competition between clubs (para 146).
This, then, is as ruthless as it
is damning. As already in its treatment of Article 45 the Court portrays the
transfer system in its current iteration as a means to improve the economic
position of clubs at the expense of workers. Given the negligible input into
its shaping allowed to workers’ representatives, this comes as little
surprise.
The conclusion is therefore that
the system counts as a restriction of competition by object. As such, as
explained at paragraphs 149-152 and as decided in Superleague, it cannot
be saved by reference to the general public interest/ legitimate objective test
applied to sport in Meca-Medina, although the Court cites only Superleague
and Em
akaunt BG (C-438/22), not Meca-Medina. That in turn means that
only Article 101(3) can save FIFA’s rules. But the Court’s treatment of Article
101(3) at paragraphs 153-157 is as brusque as it is brisk. The ultimate
decision belongs with the national court, but the Court gives a strong steer
that the discretionary and/or disproportionate nature of the rules and their
severe restriction on cross-border competition between clubs means they cannot
be regarded as indispensable or necessary to achieve economic benefit, even
were any such benefit shown.
The legitimate role of FIFA
The Court’s ruling treats the
transfer system as rotten. But there is plenty in the Court’s judgment for FIFA
to be pleased about.
The Court’s interpretation of
both Article 45 and Article 101 allows for recognition of a legitimate
regulatory role performed by FIFA in adopting common rules to regulate sport,
and provide some detail on how far this may reach. Paragraphs 100-103, dealing
with Article 45 and paragraphs 143-144, dealing with Article 101, contain a
receptivity to FIFA’s regulatory aspirations on which FIFA (and other governing
bodies) are likely to rely in framing defence of their practices in future.
The objective of ensuring the
regularity of sporting competitions constitutes a legitimate objective in the
public interest which may be pursued by a governing body. Making the
organisation and conduct of international competitions subject to common rules
intended to guarantee the homogeneity and coordination of those competitions
within an overall annual or seasonal calendar is recognised as legitimate. So
too the protection of the essential role played by equal opportunities and sporting
merit in the conduct of competitions organised at both European and national
level; and ensuring teams compete against each other under homogeneous
regulatory and technical conditions.
These paragraphs of the judgment
also reflect specifically on how these common rules shall affect players. The
Court accepts that rules are needed to regulate the composition of teams
participating in competitions; that there may be rules relating to the time
limits for transfers of players during the competition; that there may be rules
intended to ensure the maintenance of a certain degree of stability in the
squads of clubs, which also entails concern for the continuity of related
contracts; rules setting deadlines for player transfers in order to avoid
transfers at a late stage of the season which would damage the overall
integrity of the competition. Paragraph 144 seems open to prohibiting – as the
current Regulations do -the unilateral termination of employment contracts
during the season or even in a given year. These interventions, the Court
accepts, serve as means to contribute to the pursuit of the legitimate
objective of ensuring the regularity of club football competitions.
So this is to recognise the need
for regulation of the sport generally and regulation of the place of players
within it in particular. It is to recognise the place of a governing body in
doing so. Presumably these activities, then, fall within the scope of the legitimate
regulatory role performed by a governing body, and they are not a practice
which has the object of restricting competition. This echoes Superleague.
In that ruling UEFA’s detailed procedures on prior approval were condemned as non-transparent,
lacking objective criteria and discriminatory – much as FIFA’s transfer system
fell apart under scrutiny in Diarra. But in Superleague the Court
did not direct that the market for supply of sporting competitions shall become
a free-for-all. Quite the reverse. It accepted that a prior authorisation
system may be used to refuse a competition which is not based on sporting merit.
It seems that the object of requiring that new competitions be open and based
on sporting merit is not to restrict competition but rather ‘the pursuit of
legitimate objectives, such as ensuring observance of the principles, values
and rules of the game underpinning professional football’ (ESL para
176, and see analyses here
and here).
Superleague provides opportunities for UEFA to re-define its regulatory
purposes in defence of the values of the game – provided it meets the required
standards of transparency, objectivity and non-discrimination. Similarly Diarra
challenges FIFA to pin down with more care how and why rules governing the
consequences of unilateral termination of contract are necessary to protect the
integrity of sporting competition, and to devise rules that genuinely do so.
Revising the rules
It seems clear that FIFA’s rules
on transfers must be made less restrictive and more predictable than they are
now. The difference between the status of a player out of contract and a player
still in contract will need to be reduced, but I do not think it will need to
be eliminated. The Court leaves room for
FIFA to adopt common rules which are necessary to sustain the integrity and
regularity of sporting competition. It seems clear from paragraphs 100-103,
dealing with Article 45, and paragraphs 143-144, dealing with Article 101, that
the Court is not condemning the very idea that sport needs common rules,
operating independently of local contract and labour law, which are designed to
protect the sport’s functioning and which may have an impact on a player who
commits a unilateral breach of contract. The transfer window will survive, even
though it plainly exerts some deterrent effect on clubs’ willingness to act in
the market for players. I think it remains open to FIFA to devise a system that
will maintain some degree of control over the eligibility of the player who
commits a unilateral breach of contract. I think FIFA could provide that a
player will not be able to quit one club and insist on being available to play
for a new club immediately, even if local law permitted that. How long would
the player have to wait? – well, that remains to be decided as the FIFA rules
come to be revised. In this sense footballers will still not be treated in
exactly the same way as plumbers, sausage-makers and University teachers – they
will be subject to special rules applied within their industry in addition to
applicable local contract and labour law. In some parts of the judgment,
especially paragraph 145, the Court seems to assume that clubs can be
adequately protected from the harm flowing from a breach of contract through
the application of contract and employment law, and that may be so, but there
is also the wider interest in the integrity of the sporting competition to take
into account. It would be damaging to sporting integrity if the local law
entitled the player immediately to take up employment with a new club. It would
be especially damaging in a transnational competition if different laws applied
in different states, as they doubtless would. So there must be room also for
FIFA, as the transnational regulator of the sport, to address the phenomenon of
unilateral breach of contract. But – how? There is a tension – when does action
taken against a player who has committed a unilateral breach of contract cross
the line from a (lawful) scheme designed to protect the integrity of sporting
competition to an (unlawful) attempt to use regulatory power to extract
advantage to the clubs at the expense of the player? FIFA’s job will be to show
when and why such rules are needed given the special demands of sporting
competition. None of this is easy, and it will take time, but paragraphs
100-103 and 143-144 of Diarra are a goldmine for FIFA.
A major objection which runs
through the ruling is directed at the discretionary case-by-case evaluation of
the consequences of unilateral breach of contract. The Court in Diarra
notes that a system, if shown to be justified and proportionate, may be
supported by sanctions but only on condition that they are set according to transparent,
objective, non-discriminatory and proportionate criteria and also they shall be
subject to review (para 111), which is a requirement which has close thematic
links with the Court’s treatment of UEFA’s rules on prior approval in Superleague.
FIFA’s rules on transfers need to be made clearer. Probably it is required that
it be possible to predict in advance what would be the consequence of a
unilateral breach of contract. That, though, will be tricky if the individual
circumstances of each case need to be taken into account, as is suggested by the
Court in paragraphs 110, 111, 112, and 137. I am not suggesting FIFA’s
re-design of its rules will be easy.
The Diarra ruling does not
require that a renegotiation of the transfer system shall involve a formal role
for player unions, but a strong theme in the ruling is that FIFA has presided
over a system which is of huge advantage to some stakeholders and operates to
the detriment of others. The Court is not shy of commenting on how the system
works very well for clubs as employers (paras 107, 145). Re-negotiation of the
transfer system through a process which gives thorough and sincere respect to
the voice of the workers would increase the likelihood that a revised version
will be compatible with EU law. More generally the Court will have performed a
great service if this ruling triggers a deeper reform of governance in sport so
that all affected interests – players, even fans – enjoy a louder voice in
decision-making than occurs right now. Perhaps FIFA will do this; perhaps, if
not, the EU will be tempted to adopt legislation mandating improvement in the
standard of governance in sport in general or football in particular. I am
aware how naïve that may sound.
Diarra summarised? Sport
is special. Just look at paragraphs 100-103 and 143-144. But sport is not as
special as special as the governing body claims, and the particular practices
at stake have been found to violate EU law, and will require reform in the
shadow of EU law. In that Diarra is in perfect alignment with Bosman
and Superleague.