Author: Dr. David Sharpe KC, 12KBW
Introduction
On 4th October 2024, the European Court of Justice (‘CJEU’) delivered its judgment in Case C‑650/22, FIFA v BZ (‘the Diarra case’) on a reference by a Belgian Court for a preliminary ruling on the compatibility with Articles 45 and 101 of the TFEU of certain provisions of the Federation Internationale de Football Association (‘FIFA’) Regulations on the Status and Transfer of Players (‘RSTP’). The CJEU found that some aspects of FIFA’s transfer rules regarding financial compensation and imposing additional sporting sanctions on both club and player in case of early contract termination without “just cause” are incompatible with the guarantee of freedom of movement and EU competition law.
Background
On 22 March 2014, FIFA adopted the RSTP, which came into force on 1 August 2014. These rules provide for a system of compensation and sanctions applicable to clubs that sign players who have terminated their previous contract without just cause.
Article 9.1 requires that a player must obtain an International Transfer Certificate (‘ITC’) before they can be registered with a new association. Article 8.2 (of Annex 3) provides that an ITC may not be issued if a contractual dispute has arisen and/or a contract has not expired or is terminated early other than by agreement. Article 17 sets out a provision that the party in breach pay compensation, and, that the player and new club are joint and severally liable. In addition to the financial compensation sporting sanctions can be applied against a club held responsible for breach of contract or inducing a breach, and, there is a rebuttable presumption that any club signing a player who has terminated their contract without just cause induced the player to commit the breach. The sanction comprises a ban on registering new players (either national or international) for two entire and consecutive registration periods.
The issue under consideration in this appeal is whether FIFA rules on transfers can conflict with European Union legislation relating to competition and freedom of movement if they limit possibilities for players to change clubs, and for clubs to hire.
The Facts
Former Chelsea, Arsenal, Portsmouth and French international Lassana Diarra signed a four-year contract with Lokomotiv Moscow (‘Moscow’) in 2013. The deal was terminated a year later after Diarra was unhappy with alleged pay cuts.
Moscow applied to the FIFA dispute resolution chamber (‘DRC’) for €20m compensation, alleging breach and termination of contract without just cause within the meaning of Article 17 of the RSTP. The player submitted a counterclaim seeking compensation for unpaid wages.
Diarra claimed that despite interest from several clubs his search was hampered by the RSTP stipulating that any new side would be jointly responsible with him for paying compensation to Moscow. The only offer he received was from Sporting du pays de Charleroi (‘Charleroi’) which was premised on his eligibility for registration and confirmation that Charleroi would not be joint and severally liable for the compensation.
The player sought confirmation from FIFA and the Belgian Football Association (‘URBSFA’) that he could be registered and made eligible to play for Charleroi, and, that the adverse provisions of the RSTP would not be enforced against him.
The DRC upheld Moscow’s claim in part, fixing compensation payable by Diarra to the club at €10.5m and dismissing his counterclaim. URBSFA indicated that under FIFA rules Diarra could not be registered until an ITC had been issued by his former club. The DRC also ruled that Article 17.2 (i.e. the new club being joint and severally liable with the player) would not apply to Diarra in the future. This decision was upheld on appeal by the Court of Arbitration for Sport (CAS).
The player argued that a potential deal with Charleroi fell through because of the RSTP. He issued proceedings against FIFA and the URBSFA before the Belgian Commercial Court, seeking damages for loss of earnings of €6m suffered by reason of their application of the RTSP, which he asserted were contrary to European Union law. The Court considered the claim to be well founded in principle and ordered FIFA and the URBSFA to pay a provisional sum of €60,001 – this was appealed by FIFA. The Belgian Court of Appeal referred questions to the European Court of Justice (‘CJEU’) asking whether Articles 45 and 101 TFEU are to be interpreted as precluding:
(i) the principle that the player and the club wishing to employ him [or her] are jointly and severally liable in respect of the compensation due to the club whose contract with the player has been terminated without just cause, as stipulated in Article 17.2 of the RSTP, in conjunction with the sporting sanctions provided for in Article 17.4 of those regulations and the financial sanctions provided for in Article 17.1;
(ii) the ability of the association to which the player’s former club belongs not to deliver the ITC required if the player is to be employed by a new club, where there is a dispute between that former club and the player (Article 9.1 of the RSTP and Article 8.2.7 of Annexe 3 to the RSTP)?’
The CJEU’s Decision
- Drawing upon its judgment in Superleague (European Court of Justice, European Superleague Company SL v Fédération internationale de football association (FIFA), Union of European Football Associations (UEFA), C-333/21, 23 December 2023)the CJEU held that the rules adopted by sports federations generally fall within the scope of EU law except where these rules have been adopted exclusively for non-economic reasons and for matters of interest only for sport. According to the CJEU, in other instances sports-related specificities can be considered in the interpretation of the relevant EU law provisions – see [76] and [84].
- FIFA’s transfer regulations, particularly those relating to contractual stability, constitute a restriction on competition within the meaning of Article 101(1) TFEU and a restriction on the free movement of workers under Article 45 TFEU – see [72]-[78];
- While the objectives of maintaining contractual stability and the integrity of sporting competitions are legitimate, FIFA’s regulations go beyond what is necessary to achieve these objectives and are therefore disproportionate – see [89]-[95];
- The European Commission erred in law by failing to properly assess the compatibility of FIFA’s regulations with EU competition law and free movement principles – see [105]-[112].
Commentary
The CJEU’s decision makes it clear that certain aspects of FIFA’s rules governing the compensation obligations and sporting sanctions that result from an early termination of a contract in the absence of “just cause”, are incompatible both with the freedom of movement and with EU competition law.
There can be little doubt as to the restrictive nature of the RSTP rules given that they have as their object the restriction and prevention of cross-border competition between football clubs, which was said to be generalised, drastic and permanent. Without those rules, any professional football club is free to compete with any other by recruiting players already engaged by a given club. The CJEU noted that football clubs’ ability to compete with each other by recruiting trained players has an essential role in the professional football sector.
The RSTP rules, even if presented as aiming to prevent the ‘poaching’ of players by clubs with greater financial resources, were stated to be comparable to a general, absolute and permanent ban on the unilateral recruitment of players already signed, imposed on all professional football clubs, across the entire EU, and affecting all the players.
It seems clear that FIFA will have to reconsider the operation of the RSTP within the EU. The legal consequences and impact of this decision remain to be seen. The key question is whether redrafted transfer rules would pass the CJEU’s tests under Articles 45 and 101 TFEU.
The CJEU’s decision marks a significant and seismic change to the football transfer system. The decision could lead to an increase in players moving clubs without the spectre of massive financial risk to them or their new clubs which could improve the power dynamic between players and clubs. However, the concern about financially strong clubs poaching talent remains.
What is notable, however, is the CJEU’s willingness to intervene in the regulation and governance of sport. When seen against the backdrop of a global general resurgence in the use of antitrust enforcement, this decision represents a significant new milestone in the use of competition law to force change and improvement in the sports ecosystem.
Despite Brexit the ruling will likely have significant ramifications in the UK. Given the exposure of the Premier League to the European transfer market the CJEU ruling could have profound implications for smaller clubs that rely heavily on developing young talent and selling them at a profit. If transfer fees decline due to increased player mobility or changes in contractual obligations, the clubs may face reduced income, complicating their ability to comply with Financial Fair Play (FFP) regulations and potentially leading to lower valuations. The Diarra ruling may also lead to wealthier clubs that can afford to pay higher player wages circumventing the transfer market and directly dealing with the players.