Football intermediaries, or agents, are again under attack in the news. For some, corrupt behaviour has become endemic in football’s culture. It is always dangerous to scapegoat a whole profession or a group of people. Many intermediaries are trying their best to lawfully defend the interests of their clients, but some are not. The key focus should be on providing an adequate legal and administrative framework to limit the opportunities for corrupt behaviour in the profession. This is easier said than done, however. We are dealing with an intrinsically transnationalized business, often conducted by intermediaries who are not subjected to the disciplinary power of federations. Sports governing bodies are lacking the police power and human resources necessary to force the intermediaries to abide by their private standards. In this context, this blog aims to review a recent case in front of the regional court of Frankfurt in Germany, which highlights the legal challenges facing (and leeway available to) national federations when regulating the profession.

Since April 2015, the FIFA Regulations on Working with Intermediaries (“Intermediaries Regulations”) entered into force. They replaced the 2008 FIFA Players’ Agents Regulation and introduced dramatic changes to the regulation of players’ agents (for a quick introduction read our short guide here). Although seeing its first light on April Fools’ Day, the Intermediaries Regulations are not to be taken lightly. On the contrary, the new rules constitute a major turning point in the governance of player and club representation. Furthermore, the question of the compatibility of the Intermediaries Regulations with EU competition law promptly arose when the Landgericht Frankfurt am Main (LG) had to rule on a challenge to the Reglement für Spielervermittlung (DFB-regulations), the national measure implementing the FIFA Regulations issued by the German Football Federation (DFB, Deutschen Fußball Bund). In its injunction of 29 April 2015 the LG found some provisions of the DFB-regulations to be contrary to Article 101 TFEU (see our earlier blog). This decision was appealed by both parties to the Oberlandesgericht Frankfurt am Main (OLG), which rendered its ruling on 2 February 2016. This blog aims to analyse the decision of the OLG, while also putting it into its wider legal and social context.

I.              Back to the future: The Piau case revived

It is not the first time that the regulation of football agents/intermediaries by football federations and EU law are colliding. The previous Piau saga that started on 23 March 1998 with a complaint to the European Commission by a French agent, Laurent Piau, ended only very recently in front of the French Courts with a painful defeat for Mr. Piau. In the framework of that case, the then Court of First Instance of the EC (CFI) issued a ruling on the compatibility of the FIFA Agents Regulations with EU competition law, on appeal against the Commission’s decision to reject the complaint by Laurent Piau. In that decision, the CFI famously showed its surprise to see a private association engaging in regulatory activity without an express delegation of public power. In the words of the Tribunal, “the rule-making power claimed by a private organisation like FIFA, whose main statutory purpose is to promote football, is indeed open to question”.[1] Indeed, “[i]n principle, such regulation, which constitutes policing of an economic activity and touches on fundamental freedoms, falls within the competence of the public authorities”.[2] Yet, as many know, the world of football is special and in practice national states have very much relinquish regulatory control over it.

The CFI was pragmatic enough to recognize this unusual state of affairs. In fact, this peculiarity also enabled it to consider that the FIFA regulations, issued by a private organization, could not escape the scope of EU competition law.[3] Yet, in fine, the CFI endorsed the compatibility of the FIFA regulations with EU Competition law. It considered first that the European Commission (EC) was right in holding that it obtained the repeal of the most restrictive provisions contained in the original FIFA regulations.[4] Furthermore, the CFI supported the EC’s view that the compulsory nature of the FIFA licensing mechanism could be justified under the framework of then Article 81(3) EC [now 101(3)TFEU]. It stated that the “Commission did not commit a manifest error of assessment by considering that the restrictions stemming from the compulsory nature of the licence might benefit from an exemption on the basis of Article 81(3) EC”.[5] Finally, the CFI affirmed the applicability of Article 82 EC [now 102 TFEU] to the FIFA regulations, but concluded that “it follows from the above considerations regarding the amended regulations and the possible exemption under Article 81(3) EC that such an abuse [of a dominant position] has not been established”.[6]

Thus, based on the framework of analysis used in Piau, there is absolutely no doubt that EU competition law is applicable to the DFB-regulations (and analogically to all the other national regulations implementing the new FIFA Intermediaries Regulations).[7] The key question, however, is whether the restrictive effect on competition of those new rules can be justified. Such a justificatory framework of analysis is also broadly in line with the CJEU’s case law on competition law and sport, and in particular its Meca-Medina ruling.[8] The question of the legitimate objectives and proportionality of the new rules was rightly identified by the LG and OLG as the defining one to assess rule-by-rule the legality of the DFB’s regulations.

II.            The OLG Frankfurt and the Compatibility of the DFB regulations with EU Competition Law

The OLG’s ruling bears no clear winner or loser, as both parties can claim to have prevailed on parts of their claims. In its decision the Court clearly outlined a set of provisions that it deemed compatible with EU law, and another contrary to it. In any event, this case is again a good reminder that EU law is no golden bullet against the regulations of the Sports Governing Bodies (SGBs). Instead, their compatibility with EU law must be assessed on a case-by-case basis, bearing in mind their contexts and objectives. Nevertheless, EU law can be invoked to challenge the rationality of the SGBs’ regulations and to check any disproportionate encroachment on the economic freedom of the affected actors.

A.    The DFB rules incompatible with EU Law

In the present case, the DFB’s regulations for intermediaries faced a relatively detailed quasi-constitutional control by the OLG. The German court found that parts of the regulatory options adopted by the German federation are disproportionate to attain their objectives and therefore contrary to Article 101 TFEU. This is especially true of the rule forcing intermediaries to abide by the rules and jurisdictions of the DFB, UEFA and FIFA, and of the rule imposing a duty to provide an extended certificate of good conduct usually reserved for professions involving a risk to the integrity of minors.

In line with the decision in first instance, the OLG ruled against the provision requiring intermediaries to submit to the jurisdictions of FIFA, UEFA, DFB and its members in connection with all violations of their regulations and statutes (see point 1 of DFB Vermittlererklärung für natürliche Personen – Anhang 1, and a related notice later issued by the DFB).^[9] In the OLG’s view, it would result in an impossible situation for intermediaries, as they would be required to have a ‘reasonable’ knowledge of, at least, 35 different association statutes and face being subjected to 30 different jurisdictions.^[10] The court puts forward that it is necessary, as a prerequisite for the submission of non-members to the rules of an association and its jurisdiction, to be able, at any time to take knowledge, in a reasonable manner, of the content of the regulations, compliance mechanisms and sanctions. This possibility was not warranted in the present case. In other words, if the DFB wishes to subject intermediaries to its jurisdiction it is possible, but it would need to clearly define what such a submission would entail in terms both of the rules and procedures that would be applicable. In fact, as recognized by the European Parliament,[11] some type of disciplinary control by the national federations over the intermediaries is necessary to give some teeth to their regulations.

Furthermore, the OLG also rules that agents cannot be forced to submit an extended certificate of good conduct (erweiterten Führungszeugnisses).^[12] The OLG agrees with the appellant that this duty is impossible to fulfil as under German criminal law, such certificate can be issued only for occupations suitable to establish/result in contacts with children and young people. Yet, such a contact with minors is not at the heart of an intermediary’s profession, especially that, as we will see below, intermediaries cannot derive any financial compensation for a transfer or employment contract involving a minor, it seems thus impossible for he or she to obtain the requisite certificate.^[13]

The OLG has clearly drawn a line in the sand. There is a limit to the obligations the DFB can impose, they must be rationally possible to fulfil and connected to the objectives pursued and must not be unreasonably burdensome for the intermediaries.

B.    The DFB rules compatible with EU Law

The judgment is rather remarkable for what it considers proportionate regulation by the DFB.

First, it endorses, contrary to the LG, the proportionality of the ban on intermediary fees for transfers or contracts involving minors.[14] This ban was a very controversial part of the new FIFA regulations, as it was deemed extremely restrictive of the economic freedom of intermediaries and potentially counter-productive. [15] However, in the view of the OLG, article 7.7 of the DFB-regulations pursues a legitimate objective: the protection of minors (der Minderjährigenschutz).[16] It aims, more specifically, to prevent the transfer of underage players based solely on the economic interests of the intermediary and/or that underage players are taken to Germany without a stable employment perspective.[17] Moreover, the OLG deems this prohibition to be necessary as the other legal protections for minors provided by the German civil code are often inapplicable.[18] Finally, the court considers this prohibition to be proportionate. First, because intermediaries are not barred from being remunerated for advising minors when this advice is not requested in the framework of the conclusion of an employment contract or a transfer. Furthermore, the OLG notes that similar measures have been adopted in all other European countries and is supportive of a uniform approach to the regulation of the role of intermediaries in transfers of minors.[19] Overall, this is not a surprising assessment. The need to combat human trafficking and to fight abuses linked to transfers of minors have been repeatedly emphasised by the European institutions in their soft law.[20] Recently, the European Parliament underlined ‘the specific vulnerability of young players and the risk of them becoming victims of human trafficking’[21]. Only time will tell whether this type of draconian measure will rein such abuses. In any event, if reducing the economic incentives of intermediaries linked to transfers of minors will most probably restrict their economic opportunities, it is also likely to diminish the connected incentives for human trafficking in football.[22]

Furthermore, the OLG’s judgment also endorses the transparency requirements imposed by the DFB. More precisely, it deemed the obligation for clubs and players to disclose the contract details covering remuneration and payments to intermediaries’ enshrined in article 6.1 DFB-regulations compatible with EU competition law.[23] The legitimate aim pursued is the transparency and traceability of the market for intermediaries. Behind this objective, lies the idea that player transfers should be primarily based on sporting, rather than financial reasons. Consequently, it deems that an obligation to disclose payments connected to intermediation is necessarily linked to the attainment of this goal. This duty to disclose is also considered proportionate. For the OLG, it does not run counter the German data protection rules, nor does it constitute a disproportionate infringement in the commercial operations of an intermediary. When balancing the interest of the intermediary to keep the financial flows secret and the interest of the DFB in unveiling these flows, the OLG finds that transparency aimed at limiting the external influence of intermediaries on transfers should prevail.^[24] In the eyes of the court, the DFB has concretely demonstrated that the negotiation of transfers is linked with important fees (erheblichen Zahlungen), which are liable to trigger a transfer of a player for economic reasons, rather than sporting ones. This, the OLG argues, runs counter to the ideal of fair sporting competitions. ^[25] In general, striving for greater transparency/publicity in the intermediary market is at the heart of the regulatory shift intended by the new FIFA regulations.[26] In fact, a recent report by two Harvard based scholars argues that the lack of transparency in the transfer market is one of the main causes for money laundering and corruption in football.[27] This is reinforced by the concentration of the market for intermediaries, with a group of happy few constituting an oligopoly.[28] Besides, due to the inherently transnational operation of the market, it is extremely difficult to monitor for national authorities. Intermediaries rely on complex contractual structures (many of them have been recently exposed on the footballleaks website), juggling with national laws and arbitration clauses to reduce both their taxes and regulatory oversight. Though the transparency requirements imposed by the DFB are extremely limited (a first rough synthesis for 2015 is available here) and way bolder proposals must be put on the table,[29] this is an important step in the right direction. This quest for transparency and openness around the financial flows involving intermediaries is very much “applauded” by the European parliament.[30] In fact, if supporters and citizens, who are often in fine called to financial rescue when an overspending club is ailing, are expected to exercise a public check over the over-optimistic (and sometimes corrupt) management of clubs and the correlated extravagant fees paid to intermediaries, they must be able to rely on trustful data to conduct such a critical assessment.

Finally, and this is most interesting in light of the on-going legal battle over FIFA’s third-party ownership ban, the OLG, confirming the LG’s assessment, also recognized the legitimacy of the DFB’s ban on an intermediary having an interest in future transfer compensations.[31] Its legitimate purpose is to rein the disproportionate influence, based on personal financial incentives, of intermediaries on a player’s transfers.[32] The OLG seems to follow the LG’s view that the potentiality of obtaining a share of future transfer fees constitutes a major incentive for intermediaries to actively encourage an early termination of a player’s contract.[33] In short, the German court endorses the need to limit incentives for intermediaries to trigger contractual ruptures over their personal financial interest in a future transfer of a player. A similar logic could be applied to the proportionality assessment of the TPO ban. Indeed, this ban is also aimed at avoiding that transfers be triggered for purely financial reasons. The idea being that a club should not be in a position of dependence vis-à-vis a third-party (in practice often an intermediary) that would force it to transfer a player to satisfy its own purely economic rationale. In this regard, the OLG’s judgment is very encouraging for FIFA as it supports a logic of ‘de-financiarization’ of football. The court is very much recognizing that economic incentives should not be front-and-centre in contemporary football and that the fact that there is a clear economic dimension to sport (triggering for example the application of EU law and/or labour law) should not overshadow its other dimensions (cultural, social, ethical, educational). Conciliation is necessary, players are not amateurs anymore, transfers are possible, TV rights money can trickle down, but the rampant financiarization (and collateralization) of labour contracts seems both dangerous in terms of the economic instability it might trigger (think FC Twente) and of the unethical abuses it might incite and conceal.

Conclusion: The legal consequences of FIFA’s retreat

The new FIFA Regulations for Intermediaries are first and foremost a confession of impotence from the part of FIFA. Fifteen years after introducing a worldwide regulatory mechanism applicable to football agents, FIFA basically acknowledged its incapacity to control the profession and rein its negative externalities. The old licensing system proved unable to provide a qualitative level playing field for agents, nor was FIFA capable (or willing to invest enough resources) to truly enforce its rules. In fact, at the local level, a multitude of informal agents and practices had practically hollowed out the FIFA Regulations.[34] Yet, instead of strengthening its regulatory apparatus and enforcement mechanisms, FIFA decided to retreat and basically handed over the responsibility to regulate intermediaries to the multitude of national federations. One can be excused for doubting at first that such a re-nationalization is well suited to control an inherently transnational market.[35] Yet, there is still some room left for hope.

The re-nationalization of the Regulations will undoubtedly bring about a complex regulatory landscape with different regimes applicable in each national jurisdiction.[36] Moreover, agents/intermediaries might face an enhanced amount of red tape and administrative fees if they aim at entering each and every national market. These negative consequences can be tempered, however, by a number of things. First of all, the market for intermediaries has never been truly transnational. Sociologists have shown that it operates more as a chain of national actors rather than with truly transnational players.[37] Furthermore, the big transfer money (and thus intermediary money) in football is concentrated on a small number of national markets (mainly the European big five[38]). This means that if those markets jointly engage in a strict regulation of intermediaries it will affect disproportionately (probably positively) the profession. Due to massive TV rights revenues these national federations and leagues also dispose of the necessary (financial and administrative) resources to rigorously enforce their rules. For example, if at a European level, national federations were able to coordinate their new intermediaries regulations and provide a level regulatory field for the profession, which would involve both reducing the administrative costs to exercise it and a sharper control of its negative externalities, FIFA’s regulatory retreat would be largely compensated by a potentially more effective regulatory system.

What is the role of EU law in this regard? The Piau case is a good reminder that the CJEU is sympathetic to the need to regulate the market for intermediaries. Since then, the soft law of the European institutions (and especially the European Parliament’s position) has very much comforted this sympathy.[39] However, it would be rather naïve to believe that the EU would be able and willing to take on the task of single-handedly re-regulating such a complex transnational field. It has currently other burning priorities and crucially lacks the resources and expertise to do so. The role of EU law is rather one of a careful catalyst and counter-power, aimed at encouraging private regulations at the national or transnational level and eschewing that they go too far in scapegoating the intermediaries and in restricting their economic freedoms. In this regard, the OLG Frankfurt provided, on the basis of EU law, a rather balanced review of the DFB regulations, striking down some of the more intrusive (or arguably less rational) parts of the regulations, while recognizing the legitimacy and proportionality of others. EU law can be invoked to open up a critical discussion over the regulatory trade-offs of transnational private regulations. Not more but also not less.

[1] Case T-193/02, Laurent Piau v Commission [2005] ECR II-0209, paras. 112-115; Landesgericht Frankfurt am Main: Urteil vom 29. April 2015 · Az. 2-06 O 142/15, para. 77. On the Piau ruling see D. Waelbroeck & P. Ibañez-Colomo, ‘Case C-171/05 P, Laurent Piau, Order of the Court of Justice (Third Chamber) of 23 February 2006, [2006] ECR I-37’, Common Market Law Review 43: 1743–1756, 2006.

[2] Ibid., para. 78.

[3] “On the other hand, since they are binding on national associations that are members of FIFA, which are required to draw up similar rules that are subsequently approved by FIFA, and on clubs, players and players’ agents, those regulations are the reflection of FIFA’s resolve to coordinate the conduct of its members with regard to the activity of players’ agents. They therefore constitute a decision by an association of undertakings within the meaning of Article 81(1) EC (Case 45/85 Verband der Sachversicherer v Commission [1987] ECR 405, paragraphs 29 to 32, and Wouters and Others, paragraph 71), which must comply with the Community rules on competition, where such a decision has effects in the Community.” Ibid., para. 75.

[4] Ibid., paras 83-99.

[5] Ibid., para. 104.

[6] Ibid., para. 117.

[7] This is well recognized and explicated in the OLG’s judgment. See, OLG Frankfurt am Main, Urt. v. 02.02.2016, Az.: 11 U 70/15 (Kart), para. II.1.

[8] Case C-519/04 P David Meca-Medina and Igor Majcen v Commission [2006] ECR I-6991, para. 42 ff. See further S. Weatherill, ‘Anti-doping Revisited: The Demise of the Rule of ‘Purely Sporting Interest’?’ in S. Weatherill, European Sports Law, ASSER Press, Springer, 2014, pp. 379-399 and B. Van Rompuy, The Role of EU Competition Law in Tackling Abuse of Regulatory Power by Sports Associations, available at http://ssrn.com/abstract=2767467.

[9] OLG Frankfurt am Main, Urt. v. 02.02.2016, Az.: 11 U 70/15 (Kart),, II.2.b.

[10] Ibid, II.2.b

[11] The European Parliament “Underscores the finding of the study that the regulations of agents established by sports federations are basically aimed at controlling access to the profession and regulating its exercise, but that these bodies have only limited supervisory and sanctioning powers, since they lack any means of control or direct action vis-à-vis sports agents who are not registered with them; nor are they entitled to impose civil or criminal penalties”. European Parliament, Resolution on players’ agents in sports, 17 June 2010, (2011/C 236 E/14), para.8.

[12] OLG Frankfurt am Main, Urt. v. 02.02.2016, Az.: 11 U 70/15 (Kart), II.3.a

[13] Ibid, II.3.a: Art. 3.2 and 3.3 DFB-regulations

[14] Ibid, II.2.a

[15] For a good critique see N. de Marco, ‘The new FA Football Intermediaries Regulations and the Disputes Likely to arise’, at §23-25.

[16] Art. 7.7 DFB-regulations

[17] OLG Frankfurt am Main, Urt. v. 02.02.2016, Az.: 11 U 70/15 (Kart), II.2.a

[18] “Die Regelung ist auch notwendig; insbesondere bieten entgegen den Darstellungen der Klägerin die Regelungen zur beschränkten Geschäftsfähigkeit Minderjähriger gemäß §§ 104 ff BGB im vorvertraglichen Feld der Anbahnung eines möglichen Vertragsschlusses keinen Schutz. Dies erlangt Bedeutung, sofern - wie vom Beklagten dargestellt - eine Mehrzahl an potentiellen Spielern angeworben, jedoch nur einer tatsächlich vermittelt wird.” Ibid, II.2.a.

[19] “Schließlich erlangt bei der Verhältnismäßigkeitsprüfung auch Bedeutung, dass im europäischen Ausland ausnahmslos Regelungen hinsichtlich des Verbots der kostenpflichtigen Vermittlung minderjähriger Spieler verabschiedet wurden, so dass eine einheitliche Handhabung im Sinne des Minderjährigenschutzes in besonderer Weise geboten erscheint.” Ibid, II.2.a.

[20] See amongst others: European Parliament, Resolution on the future of professional football in Europe, 29 March 2007, (2006/2130(INI)), paras 35-38; European Parliament, Resolution on players’ agents in sports, 17 June 2010, (2011/C 236 E/14), para.6-7;

[21] European Parliament, Resolution on players’ agents in sports, para.6.

[22] This is a truly worrying development. See A. C. Najarian, ‘"The Lost Boys": FIFA's Insufficient Efforts To Stop Trafficking of Youth Footballers’, 22 Sports Law. J. 151 2015. On the ‘muscle drain’ phenomena, see W. Andreff, ‘“Muscle Drain” in Sport and how to regulate it? A plea for a “Coubertobin” tax’ and J. Scherrens, ‘The muscle drain of African Football Players to Europe: Trade or Trafficking?’, Master Thesis 2007.

[23] OLG Frankfurt am Main, Urt. v. 02.02.2016, Az.: 11 U 70/15 (Kart), II.3.b; Art. 6.1 DFB-regulations

[24] Ibid, II.3.b

[25] “Dies widerspricht dem Grundsatz eines am fairen Wettbewerb orientierten sportlichen Wettkampfs [...]“. Ibid, II.3.b

[26] In FIFA’s own words: “The new system does not regulate access to the activity but provide a framework for tighter control and supervision of the transactions relating to transfer of football players in order to enhance transparency.” FIFA, Working with intermediaries – reform of FIFA’s players’ agents system, Background information, April 2015, p.2.

[27] M. Andrews and P. Harrington, Off Pitch: Football’s financial integrity weaknesses, and how to strengthen them, CID Working Paper No. 311 January 2016, p.68-103.

[28]“The analysis of shares highlights that the big five league players’ representation market is highly concentrated: half of the footballers are managed by 83 football agents or agencies. Our study reveals the existence of closed relational networks that clearly favors the concentration of players under the control of few agents.”R. Poli, G. Rossi & R. Besson, Football Agents in the biggest five European football markets. An empirical research report, CIES, February 2012, p.2.

[29] Andrew and Harrington suggest for example to create both a “Transfer Clearinghouse to house transfer process information” and a “centralized processes for registering and managing intermediaries”, op.cit. 27, p.96-99.

[30] The EP “[a]pplauds sport governing bodies’ efforts to bring about more transparency and supervision of financial flows.” European Parliament, Resolution on players’ agents in sports, 17 June 2010, (2011/C 236 E/14), para.11. See also European Parliament, Resolution on the European dimension in sport, 2 February 2012 (2011/2087(INI)), paras 76, 78 and 87.

[31] OLG Frankfurt am Main, Urt. v. 02.02.2016, Az.: 11 U 70/15 (Kart),, II.3.c; Art. 7.3 DFB-regulations

[32]“Zweck der Regelung ist es, einer an sachfremden, d.h. nicht sportlichen Interessen ausgerichteten Einflussnahme der Vermittler auf Spielerwechsel, insbesondere im Bereich der vorzeitigen Vertragsbeendigung, entgegenzuwirken. Die Regelung ist geboten, da dieser Zweck durch das Verbot insbesondere der Zahlung von Transferentschädigungen oder Beteiligungen an einem künftigen Transferwert eines Spielers den Anreiz zur sachfremden, finanziell motivierten Einflussnahme mindert.” Ibid, II.3.c.

[33] LG Frankfurt am Main: Urteil vom 29. April 2015 · Az. 2-06 O 142/15, paras. 83-84

[34] A finding shared by the CIES study and the Study on Sports Agents in the European Union commissioned by the EC in 2009.

[35] The European Parliament stated in its 2010 Resolution on Agents that « doing away with the existing FIFA licence system for player’s agents without setting up a robust alternative system would not be the appropriate way to tackle the problems surrounding player’s agents in football”. European Parliament, Resolution on players’ agents in sports, 17 June 2010, (2011/C 236 E/14), para. 10. The same scepticism is displayed by M. Andrews and P. Harrington, Off Pitch: Football’s financial integrity weaknesses, and how to strengthen them, CID Working Paper No. 311 January 2016, at p.98.

[36] For a preliminary rough mapping, see M. Colucci (ed.), The FIFA Regulations on Working with Intermediaries – Implementation at National Level, International Sports Law and Policy Bulletin, Issue 1-2015.

[37] This is highlighted in the CIES study of 2012.

[38] I.e. the English Premier League, the German Bundesliga, the Spanish La Liga, the Italian Serie A and the French Ligue 1.

[39] European Parliament, Resolution on the future of professional football in Europe, 29 March 2007, (2006/2130(INI)), para. 44; European Parliament, Resolution on the White Paper on Sport, 8 May 2008 (2007/2261(INI)), para. 100; European Parliament, Resolution on players’ agents in sports, 17 June 2010, (2011/C 236 E/14); European Parliament, Resolution on the European dimension in sport, 2 February 2012 (2011/2087(INI)), paras 75-78. This need for regulation is also embraced, though more carefully, by the European Commission in its White Paper on Sport, see European Commission, White Paper on Sport, COM(2007) 391, at para. 4.4. See also European Commission, ‘Commission blows the whistle over inflated football transfer fees and lack of level playing field’, 7 February 2013

Editor’s note: Thomas Terraz is a third year LL.B. candidate at the International and European Law programme at The Hague University of Applied Sciences with a specialisation in European Law. Currently he is pursuing an internship at the T.M.C. Asser Institute with a focus on International and European Sports Law.

1.     Introduction

To many it may seem obvious that athletes in a national championship should only be able to participate if they have the nationality of the relevant state. The Dutch Road Cycling National Championships should have Dutch cyclists, and the German Athletics Championships should have German athletes and so forth. However, in reality, foreign competitors are allowed to participate in many national championships in the EU, and there is a wide discrepancy between the rules of national sport governing bodies on this issue. There is no unified practice when investigating this point by country or by sport, and rules on participation range from a complete ban on foreign competitors to absolutely no mention of foreign athletes.[1] Thus, the question arises: should foreign athletes be able to participate in national sport championships?

The Court of Justice of the European Union (CJEU) will soon be required to provide an, at least partial, answer to this dilemma as a result of an application for a preliminary ruling.  A German Court has referred three questions to the CJEU on the case TopFit e.V. Daniele Biffi v Deutscher Leichtathletikverband e.V. (DLV) which in essence ask whether EU citizenship rights and in particular, the requirement of non-discrimination on the basis of nationality, should be applied to non-nationals wishing to participate in an athletics national championship in Germany. In the meantime, the Advocate General (AG), who provides a non-binding opinion to the Court before a decision is delivered, Evgeni Tanchev has delivered an interesting opinion on the case. It addresses the claims from the applicants based on EU citizenship rights and urges the CJEU to instead review the case on the basis of the freedom of establishment.

This blog will dissect the AG’s opinion to assess the main arguments put forward in relation to freedom of establishment and EU citizenship. Furthermore, it will weigh the ramifications this case may have on the boundaries of EU law in relation to sport. To fully appreciate the AG’s opinion, it is necessary to first discuss the intriguing factual and legal background colouring this case. After all, this will not be the first time the CJEU faces thorny issues concerning discrimination on the basis of nationality and sport.

2.     Factual Background of TopFit e.V. Daniele Biffi v Deutscher Leichtathletikverband e.V. (DLV)

The second applicant in this case, Mr. Biffi, is an Italian resident in Germany since 2003. He works professionally as a personal trainer and coach and has a website which advertises his services. He has been a member of the Berlin-based athletics club TopFit (the first applicant) and has competed in athletics competitions including German national championships within the senior category of athletes above the age of 35. In these national competitions, he had his placings recorded and published his results on his website. In 2016, the DLV changed its rules on non-nationals participating in national championships across all age categories without notice or transitional period. The rules were changed to only allow German nationals to compete for the national title while non-nationals could only participate outside classification with the permission of the organisers. As a result, Mr. Biffi was even denied the ability to participate in one of the championships in which he previously participated without raising a brow. The applicants challenged the DLV rule on the basis that it is in contravention to the prohibition of discrimination on the basis of nationality under EU citizenship. 

3.     European Sports Law and Nationality Based Discrimination

Generally, sport governing bodies aim to have the maximum autonomy possible to formulate and apply their rules. In the EU, they have attempted and ultimately failed at securing an absolute autonomy.[2] The current relationship between the sport governing bodies and the EU has been described as a ‘conditional autonomy’ where sport governing bodies may exercise their discretion in formulating and applying their rules so long as they do not conflict with EU law.[3] It should be noted that the CJEU has mainly scrutinized rules from sport governing bodies which affect economic interests of the parties in the context of free movement and competition law. Evidently, this relationship has resulted in a struggle between sport governing bodies and the EU over a number of topics including non-discrimination on the basis of nationality.

Traditionally, the CJEU has addressed issues of non-discrimination on the basis of nationality in sports cases from a free movement perspective in ensuring that sport rules do not disrupt the EU’s internal market. For example, when a rule from the Union Cycliste Internationale (UCI) required that a pacemaker be the same nationality as the cyclist in the UCI Motor-paced World Championships, the CJEU rendered its ruling on the basis of the provisions establishing the free movement of workers and service providers. Moreover, the Union of European Football Associations’ (UEFA) 3 plus 2 rule which allowed football clubs to limit the number of foreign players who could play in a match to three players plus two more players who had been ‘assimilated’ by having played a certain amount of years in the concerned national football association were found in the famous Bosman case to be in contravention of the free movement of workers provisions.

In the present case, the parties have argued the case on the basis of the prohibition on the discrimination of nationality flowing from EU citizenship rights. Based on Article 9 of the Treaty on European Union, all nationals of an EU member state automatically have EU citizenship. However, these rights are only triggered when other more specific rights, such as free movement rights, are not activated first. Put differently, if the facts of a case fall within a free movement right, then the case can only be inspected in light of the relevant free movement provision; hence, EU citizenship rights may only be invoked where free movement rights are not applicable.

Interestingly enough, as the AG points out in his opinion, the facts of this case could also be framed as a restriction to freedom of establishment. In any event, the CJEU has yet to address sport rules which concern non-discrimination on the basis of freedom of establishment or EU citizenship.

So how should the CJEU address this issue? Freedom of establishment or EU citizenship rights?

4.     Analysing AG Tanchev’s Opinion: Freedom of Establishment or EU Citizenship Rights?

4.1.Scope of the Freedom of Establishment

Very early on in the opinion, AG Tanchev unambiguously expresses his preference for analysing the present case through a free movement lens.[4] He explains that Mr. Biffi is self-employed as a personal trainer and coach on a continuous and stable manner in Germany which amounts to an economic activity connected to his sporting pursuits.[5] Therefore, AG Tanchev believes the analysis should be pursued under the freedom of establishment provisions. For this view to be endorsed, it is essential that Mr. Biffi’s economic activity is sufficiently connected to his sporting endeavours.

In this context, AG Tanchev recalls the Deliège case which concerned a Judoka, who argued that a national sport governing body’s refusal to select her for an international competition was a violation of her freedom to provide services. The Court in that case had to determine whether she was engaged in an economic activity in order for the fundamental freedom to apply. In doing so, the Court unequivocally states that simply because a sport governing body labels its athlete an amateur, it does not mean that they are automatically disengaged from economic activity, and economic activities in the context of free movement of services should not be interpreted restrictively.[6] Therefore, the Court in the Deliège case focused on the judoka’s sponsorships deals and grants to conclude that she was engaged in economic activities.[7] AG Tanchev, in examining the Deliège case’s relevance, explains that this demonstrates EU law’s flexibility in finding a link between sporting and economic activities, and that even if the DLV’s rules only have an ‘indirect impact’ on Mr. Biffi’s economic activities, it should fall within the scope of the freedom of establishment.[8]

4.2.Restriction on the Freedom of Establishment and Justifications

The opinion then goes on to find that there has been a restriction of Mr. Biffi’s freedom of establishment because the DLV rule puts Mr. Biffi ‘at a disadvantage when compared with German nationals engaged in the provision of athletic training services’ because he is unable ‘to make reference to his achievements in national sporting championships in order to attract business.’ Furthermore, he states that consumers are ‘more likely to be drawn to an athletics coach advertising on-going excellence … in the national athletics championships.’[9] Given that the DLV rule is directly discriminatory, EU law only allows justification under the express derogations enshrined in the Treaty on the Functioning of the European Union (TFEU). The DLV would have had a larger window to defend their rules if they were indirectly discriminatory since the CJEU accepts both express derogations and justifications which have been developed by its own case law.

AG Tanchev readily finds that the DLV’s rules fall under the public policy derogation by aiming to ensure that the winner of the national title has a ‘sufficiently strong link’ with the country organising the championship and to ensure that the national selection of athletes for international competitions is not disrupted. It could be argued that these aims have been too easily advanced as public policy objectives. The CJEU has never accepted the former as a derogation or a justification, and concerning the latter, the CJEU has accepted objectives which ensure national representation in international competitions only as justifications. Since justifications developed by the CJEU generally are not applicable to cases of direct discrimination, such as the present case, it can be said that the opinion perhaps too quickly embraces these pursued aims as public policy objectives. This being said, sport already enjoyed a special treatment in the past as the CJEU has been open to consider justifications for directly discriminatory measures in the Bosman case.

4.3.Is the DLV’s measure proportionate?

Assuming that these aims are accepted as express derogations, the DLV measures must then pass proportionality requirements which in EU law require a measure to be suitable for the pursued aim and necessary to achieve those aims. In the sporting context, the CJEU has explained that in order for a sporting rule to be proportionate it must be limited to its proper objective and it must be inherent to the organization of the sport event.[10] AG Tanchev affirms that the measure is disproportionate because the rule disallows Mr. Biffi from competing for the national title and precludes classification in such a competition when for many years he had been allowed to compete and be classified as any other German athlete.[11] Furthermore, given he had this pre-existing right, the DLV’s failure to take any transitional measures or give sufficient notice of this change violates the legitimate expectations of Mr. Biffi who exercised his free movement in reliance of this established regime and infringes the general principle of acquired rights.[12] Thus, it can be inferred that in AG Tanchev’s view, the measure could have been proportionate had there been sufficient transitional measures in place. Such a broad interpretation of proportionality by including the non-national's right to compete for the national title, would greatly restrict the options of a sport governing body wanting to change a rule that could negatively affect the participation of non-nationals in their national competitions.

If this broad approach is not accepted, AG Tanchev contends the measure is still disproportionate since the DLV’s rules potentially exclude non-national participants from competing at all in the national championships. Such a measure could only be legitimate in ‘unusual circumstances.’ In this vein, the opinion suggests less restrictive rules which instead limit the number of non-classified athletes.[13]

Other alternative models have been suggested which are much more likely to pass the proportionality test. One commentator has suggested that non-nationals should be allowed to compete in national championships while perhaps only restricting their ability to actually win the title.[14] If applied to this case, this model would allow Mr. Biffi to participate with classification in the national championships, but if he (or other non-national) were to take the first place, the national title would be given to the highest classified German athlete in the competition. Another model put forward in a recent study suggests that a non-national can only compete in the national championship after having been resident or being member of a local club for a certain period of time. All of these suggestions show that there are a multitude of less restrictive ways to protect the organisation of national championships and the selection process of national athletes for international competitions. An outright ban on participation or only allowing participation outside of classification is remarkably restrictive and has very little chance of passing the necessity requirements under proportionality.

Overall, the argument that this case should be analysed from the freedom of establishment perspective is rather convincing because the economic dimension is clearly present. However, there is still a possibility that the CJEU will follow the line of arguments brought by the applicants based on EU citizenship rights addressed at the end of AG Tanchev’s opinion.

4.4.EU Citizenship Rights

AG Tanchev begins by explaining that even if non-discrimination on the basis of nationality deriving from EU citizenship are applied, the result of the case should be the same because the stated aims of the DLV simply do not meet the proportionality requirements.[15]  However, the opinion goes on to firmly oppose the application of EU citizenship rights in this context.

In its submissions, the Commission had strongly endorsed a view that access to leisure activities should always fall within the scope of EU citizenship rights. AG Tanchev disagrees with such a wide-ranging interpretation because it would be a huge ‘constitutional step’ to give Article 21 TFEU horizontal direct effect, meaning a private party could invoke this provision in a national court against another private party. He maintains that this provision is meant to only have vertical direct effect, where a private party may invoke this provision in a national court against the state. He explains that extending horizontal direct effect to this rather open-ended provision would have a capricious effect that would damage legal certainty because Article 21 TFEU ‘comes into play in the broad and unpredictable range of circumstances’ where applicants are ‘unable to show a link between what is in issue and economic activities’ or ‘fall outside of EU legislation concerning freedom of movement.’[16] On the other hand, one could argue the very purpose of this Article is to provide EU citizens with other means to dispute measures which harm their free movement, and such a restricted interpretation would damage l’effet utile of this provision.   

While it is probably the case that Mr. Biffi’s circumstances fall within the scope of his free movement rights, imagine if he did not have any economic interest, and instead of a coach and personal trainer, he was an accountant or car mechanic. If AG Tanchev’s approach were to be taken in such a case, Mr. Biffi would have absolutely no recourse under EU law to challenge such a discriminatory rule. If Article 18 and 21 TFEU were to be interpreted so restrictively, private monopolistic actors who exercise powers that resemble those of a state (such as many sport governing bodies) could make the exercise of the European citizenship less attractive by limiting the participation of non-nationals in certain leisure activities. The Commission is right in taking a broad approach on this issue, although in the end it found the DLV’s rule to be proportionate, especially since Article 18 and 21 TFEU makes no express reservations against the applicability of these provisions on private parties.[17] A wide interpretation would completely fit the ‘conditional autonomy’ model in which sport rules fall within the scope of EU law, and it is for the sport governing bodies to explain how and why the rule is necessary or ‘inherent’ to the conduct of sports.

5.     Conclusion

If the CJEU finds this case to fall under the scope of the freedom of establishment, it is likely the DLV’s rules will fail to be justified or crumble under the proportionality requirements. Likewise, the outcome is likely to be the same in the improbable case that EU citizenship rights are applied. However, it truly would be a ‘constitutional step’, as AG Tanchev asserted, by greatly widening the possibility of using EU citizenship rights to challenge nationality discrimination in even amateur and leisure sport. Moreover, solidifying horizontal direct effect of the EU citizenship rights would have an impact way beyond sport related cases.

Regardless, even if Mr. Biffi’s case is examined from the freedom of establishment, it will be a momentous occasion for the CJEU to further elucidate the boundaries of the application of EU law to sport. In this respect, AG Tanchev’s opinion provides an excellent analysis of the legal issues arising from the free movement perspective and picks up on the most evident detail that all the parties in the case seemed to have glanced over: Mr. Biffi has an economic interest which is tied to his sporting activities. In the long run, the application of EU citizenship rights to sports seems inevitable, but TopFit e.V. Daniele Biffi most likely does not provide the CJEU with a golden opportunity to express itself on this matter.

[1] T.M.C. Asser Institute Report, ‘Study on the Equal Treatment of Non-Nationals in Individual Sports Competitions’ (2010).

[2] Case 36-74 B.N.O. Walrave and L.J.N. Koch v Association Union cycliste internationale, Koninklijke Nederlandsche Wielren Unie and Federación Española Ciclismo [1974] ECR 1974 –01405; Case C-415/93 Union royale belge des sociétés de football association ASBL v Jean-Marc Bosman, Royal club liégeois SA v Jean-Marc Bosman and others and Union des associations européennes de football (UEFA) v Jean-Marc Bosman [1995] ECR I-04921.

[3] Stephen Weatherill, Principles and Practice in EU Sports Law (1^st edn, Oxford University Press 2017) 71.

[4] Case C-22/18 TopFit e.V. Daniele Biffi v Deutscher Leichtathletikverband e.V. [2019] ECLI:EU:C:2019:181, Opinion of AG Tanchev, para 48.

[5] ibid para 55.

[6] Joined Cases C-51/96 and C-191/97 Christelle Deliège v Ligue francophone de judo et disciplines associées ASBL, Ligue belge de judo ASBL, Union européenne de judo [2000] ECR I-02549 para 46.

[7] ibid paras 51-53.

[8] TopFit, Opinion of AG Tanchev (n 4) para 62.

[9] ibid para 70.

[10] Walrave (n 2) para 9; Deliège (n 6) para 64.

[11] TopFit, Opinion of AG Tanchev (n 4) paras 80, 88.

[12] ibid para 83.

[13] ibid paras 92-93.

[14] Weatherill (n 3) 203.

[15] TopFit, Opinion of AG Tanchev (n 4) para 97.

[16] ibid para 103.

[17] ibid paras 37-40.

Editor’s note: Rhys Lenarduzzi recently completed a Bachelor of Law (LL.B) and a Bachelor of Philosophy (B.Phil.) at the University of Notre Dame, Sydney, Australia. As a former professional athlete, then international sports agent and consultant, Rhys is interested in international sports law, policy and ethics. He is currently undertaking an internship at the T.M.C. Asser Institute with a focus on Transnational Sports Law.

In September 2018, the Football Stakeholders Committee endorsed the idea of a Clearing House that was subsequently approved in October of the same year by the FIFA Council. A tender process commenced in July 2019 for bidders to propose jurisdiction, operation and establishment. Whilst many questions go unanswered, it is clear that the Clearing House will be aimed at closing the significant gap between what is owed and what is actually paid, in respect to training compensation and solidarity payments. The Clearing House will have other functions, perhaps in regard to agents’ fees and other transfer related business, though those other operations are for another blog. It will hence act as an intermediary of sorts, receiving funds from a signing and therefore owing club (“new” club) and then moving that money on to training clubs. Whilst separate to FIFA, to what extent is unclear.

I have landed at the position of it being important to include a section in this blog series on the soon to commence Clearing House, given it appears to be FIFA’s (perhaps main) attempt to improve the training compensation and solidarity mechanisms. As will be expanded upon below, I fear it will create more issues than it will solve. Perhaps one should remain patient and optimistic until it is in operation, and one should be charitable in that there will undoubtedly be teething problems. However, it is of course not just the function of the Clearing House that is of interest, but also what moving forward with the project of the Clearing House represents and leaves unaddressed, namely, the issues I have identified in this blog series.

1. Operation and Function of the Clearing House

The Clearing House will apparently work in the following ways:

When a player is registered as a professional for the first time, or, in the case an international transfer becomes known via TMS (Transfer Matching System), a Preliminary Player Passport will be created. This will contain the information acquired by FIFA from the relevant national associations and money owing will be calculated, per the FIFA redistributive mechanisms (enshrined in Article 20 and Annex 4 of the RSTP in the case of training compensation, and at Article 21 and Annex 5 in the case of the solidarity mechanism; see Blog 1 for a comprehensive overview). Aforesaid calculation will be undertaken by FIFA and not the Clearing House, and the Preliminary Passport will be reviewed, then given the green light or conversely disputed by the relevant member associations, rather than the training clubs supposedly due compensation. Payment directions, including bank accounts and official contact details of clubs and national associations connected to the redistribution will then be communicated by FIFA to the Clearing House. An invoice may then be issued to the new club and the obligation of that club is to pay accordingly, to the Clearing House. The Clearing House will then distribute to the training clubs, though its mandate extends to confirming and ensuring the amounts and details are correct, and the money makes it to its destination. FIFA will be made aware of which payment obligations have been fulfilled, and which have not. It is FIFA and not the Clearing House then who may sanction non-compliant clubs.

For a more comprehensive overview of the Clearing House, please see Toni Roca’s piece on the LawInSport website; FIFA’s Clearing House: The Future Of Solidarity Mechanism & Training Compensation.

2. Potential Positives & Success of a Kind

One can see the positive side of modernising, centralising and digitising the transfer system, so as to improve compliance and efficiency in accordance with the regulations as they stand and the payment obligations that arise from those regulations. If achieved, FIFA can say it has ticked that box and many stakeholders will be pleased.

As mentioned in the second blog of this series, “In 2018, it was reported that just USD$67.7m of the USD$351.5m due to be distributed in solidarity contributions, was actually paid. That is a mere 19.3% of what should have trickled down and perhaps just as alarming is that this percentage has been worsening”. If FIFA does in fact close the gap between what is owed and what is paid by way of the Clearing House, that would indeed be success of kind. Hundreds of millions of dollars might make it to training clubs, some of those undoubtedly do not need the compensation, but a large share of those that might benefit are the kind of club I have referred to throughout this series as nurseries and/or victims of the so-called muscle drain. If achieved, one would then have to take their hats off to FIFA, as a specific objective would have been accomplished.

Success in the way imagined above would just be solving one issue, however. I appreciate that hundreds of millions of dollars can go a long way in achieving some form of redistributive solidarity and the fruits of that redistribution could potentially be far-reaching. Though lingering behind this hypothetical success would of course be, what proceeding with the Clearing House ignores.

3. Cause for Concern

Whilst one has to applaud FIFA’s efforts towards improvements, there appears a myriad of questions left unanswered not only about the Clearing House but additionally about the redistributive mechanisms themselves. To proceed under the guise that all is well with these systems and that all that needs to be remedied is the gap between what is owed and what is actually paid, is to ignore much of what I have raised in this blog series.

The following excerpt from a relevant FIFA webpage captures the organisations’ position.

“The original objectives and principles of the transfer rules remain sound: the protection of contractual stability; encouragement of training; solidarity between the elite and grassroots; protection of minors; competitive balance; and ensuring the regularity of sporting competitions”. 

To expand, this kind of sentiment highlights FIFA’s intention to proceed without answering the fundamental questions, as though it is the position held by all that these systems are targeted at legitimate objectives and adequate to attain them. This is clearly not just a case of once the Clearing House is in operation, the systems will simply work perfectly. To put the practical critique aside momentarily, the establishment of the Clearing House is no response to a fundamental critique, the philosophical flaws in justification for the redistributive mechanisms and it appears the hindrance cause by the systems to players’ free movement will continue to be ignored. 

Additionally, and returning to a practical perspective, with the Clearing House relying on a Players Passport, the compliance or non-compliance of national associations to provide and maintain the correct information seems to be what the project hinges on. Historically, some national federations have not been so reliable in this sense, so this is likely to be another aspect that will need significant attention. There may be less disputes given the supposed streamlining of the payment process, but might this quickly be forgotten given the introduction of the Clearing House seems to simultaneously mean an increased administrative burden on FIFA and the national associations? Then let us not proceed as though there will be no disputes at all. We are yet to be made aware what the process will be in the case of a dispute over the amounts calculated, a dispute over the Preliminary Passport, or the expiry dates of outstanding payments, to point to a few issues that may arise. Afterall, the dynamics of a transfer will change with the introduction of the intermediary Clearing House and will take some getting used to. Furthermore, it looks as though the training clubs owed money will not be involved directly in the process of disputes, which is to be dealt with by the member associations. This is questionable, as not all clubs have good relationships with their national associations, nor are national associations necessarily more trustworthy or better positioned to handle a dispute. On occasions it has been found that the reason a training club has not received their training compensation or solidarity payment, was because it was being held by a national federation (see section 4. of Blog 2 for a personal anecdote of an instance as such).

4. Concluding remarks

This account of questions and concerns is not exhaustive, and yet I would emphasise the issues with training compensation and solidarity mechanism more generally. Could the establishment of the Clearing House in fact raise more questions and cause more problems than it solves, given it may just semi-solve one problem, that of the gap between what is owed and what is paid? It is reasonable to ponder whether the commencement of the Clearing House in fact houses, protects and reinforces FIFA’s commitment to systems that are ultimately flawed, when time and energy could be better spent completely overhauling them. As it stands, and if one finds themselves sympathetic to the issues I have identified throughout this series, one can be reasonably concerned that the establishment of the Clearing House prolongs the arrival of a preferable alternative system.

In my next and final blog of this series, I intend to consider alternative systems of redistribution. I will also take the opportunity to address the idea that football clubs are incentivised by training compensation and solidarity payments.

Update: On 14 April footballleaks released a series of documents concerning Sporting de Gijón. Therefore, I have updated this blog on 19 April to take into account the new information provided.  

Doyen Sports’ TPO (or TPI) model has been touted as a “viable alternative source of finance much needed by the large majority of football clubs in Europe". These are the words of Doyen’s CEO, Nélio Lucas, during a debate on (the prohibition of) TPO held at the European Parliament in Brussels last January. During that same debate, La Liga’s president, Javier Tebas, contended that professional football clubs, as private undertakings, should have the right to obtain funding by private investors to, among other reasons, “pay off the club’s debts or to compete better”. Indeed, defendants of the TPO model continuously argue that third party investors, such as Doyen, only have the clubs’ best interests in mind, being the only ones capable and willing to prevent professional football clubs from going bankrupt. This claim constitutes an important argument for the defendants of the TPO model, such as La Liga and La Liga Portuguesa, who have jointly submitted a complaint in front of the European Commission against FIFA’s ban of the practice.[1]

The eruption of footballleaks provided the essential material necessary to test this claim. It allows us to better analyse and understand the functioning of third party investment and the consequences for clubs who use these services. The leaked contracts between Doyen and, for example, FC Twente, showed that the club’s short term financial boost came at the expense of its long-term financial stability. If a club is incapable of transferring players for at least the minimum price set in Doyen’s contracts, it will find itself in a financially more precarious situation than before signing the Economic Rights Participation Agreement (ERPA). TPO might have made FC Twente more competitive in the short run, in the long run it pushed the club (very) close to bankruptcy.

More than four months after its launch, footballleaks continues to publish documents from the football world, most notably Doyen’s ERPAs involving Spanish clubs. For this blog, our dataset will cover the two ERPAs between Doyen and Sporting de Gijón (found here and here); the ERPAs between Doyen and Sevilla FC for Kondogbia and Babá; the ERPAs between Doyen and Getafe for Abdelazziz Barreda and Pedro León; the ERPA between Doyen and Granada CF for Luís Martins; the ERPA between Doyen and Atlético Madrid for Josuha Guilavogui; and the ERPA between Doyen and Valencia CF for Dorlan Pabón.

The first part of this blog will provide background information on the recent economic history of Spanish football. The posterior in-depth analysis of the ERPAs will thus be placed in context. The blog will also include a table with the relevant facts from the ERPAs completed with the information included in an Excel document showing a map of deals and transactions allegedly conducted by Doyen and recently published on footballleaks. Relevant facts and figures that are not found in the ERPAs or in the Excel document, will be taken from the website www.transfermarkt.de. Based on the outcome of the analysis, we will attempt to conclude whether, and to what extent, the ERPAs have been profitable for the clubs involved, from a financial and competitive perspective.

Financial misery and TV rights inequality off the field

The financial misery

Spain was one of the countries most affected by the global financial crisis that commenced in 2008. The unemployment rate was above 25% for a long period of time and its budget deficit was about 10% from 2008 to 2012. The (professional) football sector also suffered from this general financial crisis. A study on the financial situation of Spanish clubs during the period 2007-2011 shows that by June 2011, 80% of La Liga clubs had a negative working capital. This meant that the clubs’ short term assets were not enough to cover the short term debts. The study further explains that the main reason for the financial difficulties is the excess of expenditures on players, i.e. paying transfer fees and salaries that clubs cannot afford. Not surprisingly, by 2011, half of the clubs from the Spanish first and second division had entered bankruptcy proceedings. A large part of the total debt was owed to the Spanish public authorities. In 2012, clubs in Spain's top two divisions collectively owed some €750 million to the tax authorities and another €600 million to the social security system. One of the teams who signed ERPAs with Doyen, Atlético Madrid, was known to have a tax debt which accounted for a fifth of the entire league’s tax debt. In fact, their tax debt of over €120 million amounted to over 60% of their annual revenue. Almost 40% of the clubs in the top two divisions presented negative equity, meaning that they were in clear need for funds from other parties. The general economic crisis prevented clubs to get these funds through normal means, like shareholders, members, sponsorships and bank loans. Local authorities were many times willing to aid their clubs. For example, the municipality of Gijón had rescued Sporting de Gijón by relocating its youth training facilities and subsequently buying the facilities for €12 million. Another example is that of Valencia CF. In its ambition to grow, the club decided to build a new stadium. The idea was to finance the new stadium by selling the old stadium. Once again, due to the financial crisis, and particularly the collapse of the housing market, it suddenly was incapable of selling the old stadium for the required price. The construction on the new stadium had already commenced with loaned money which could not be paid back. The municipality’s decision to place a State guarantee on this loan has been the subject of a formal State aid investigation by the European Commission.

TV Rights income inequality

One of the most important ways to generate income for professional football clubs is through the selling of TV rights. The Spanish clubs combined generated roughly €700 million per year from the selling of TV rights between 2010 and 2015.[2] This is slightly more than the €628 million the German Bundesliga was making per year between 2013 and 2016, but less than €940 million the Italian league was making in the 2012-13 season. The English Premier League is in a league of its own in this regard, which is making about €1.2 billion per year from the 2013-14 season onwards.[3]

Notwithstanding the total €700 million a year, most Spanish clubs do not derive enough money from selling the TV rights to compensate their losses. One has to keep in mind that where the clubs of Europe’s other major football leagues (e.g. England, Germany, France and Italy) were selling their TV rights jointly, Spanish clubs were still selling their TV rights individually. By means of the individual selling system, Spain’s two most popular clubs, Real Madrid and FC Barcelona, were capable of selling their TV rights for much more money than the other clubs. In the 2010/11 season for example, out of the €641 million generated in total, FC Barcelona got €163 million, whereas Real Madrid got €156 million. The remaining 16 clubs of La Liga had to share the remaining €322 million, which is slightly more than €20 million per club on average. By contrast, the ‘smaller clubs’ of the English Premier League were still making at least €49 million in that same season, which is two-and-a-half times as much as their Spanish counterparts.[4] Even the club that was earning least money in Italy in 2012, Pescara, was earning more per year from the selling of TV rights than the average Spanish club (€25 million).

Calls for a fairer distribution of TV rights income in Spain have been heard for years, particularly from the smaller clubs, but the switch to a joint selling system will only take place as of the start of the 2016-17 season. It is believed that continuous lobbying by Real Madrid and FC Barcelona against the joint selling system is the main reason for this delay. In a way, it could be argued that apart from reckless risks on the transfer market and the effects of the Spanish financial crisis, the dominant position of Real Madrid and FC Barcelona is what led to many Spanish clubs being in severe financial difficulties. The urge of these clubs to turn to investment companies like Doyen becomes more understandable, given that the system itself did not allow them from obtaining funds from other ‘normal’ sources.    

The ERPA’s and its aftermaths explained

On the day of writing this blog (12 April 2016), nine ERPAs between Doyen and Spanish football clubs were published on the website of footballleaks. The ERPAs are divided in two groups: Firstly, the ERPAs that proved to be successful for both the club and Doyen are analysed; the second part combines all the ERPAs in which the players concerned were either not sold for high enough profit, or not transferred at all. As will be shown, these ERPAs had mostly negative financial consequences for the clubs.

The successful ERPAS: Kondogbia and Barrada

Sevilla’s recent sporting successes, most notably winning the Europa League four times since 2006, are said to have been the result of a high level youth academy combined with an excellent scouting network. However, it has never been a secret that Sevilla made use of the services provided by Doyen, including the signing of ERPAs. In a well-publicised seminar on TPO that took place in April 2015, Sevilla defended the TPO model and made clear that it was against an outright ban of the practice. The ERPA concerning Geoffrey Kondogbia and his subsequent transfer to AS Monaco can explain why Sevilla is in favour of the TPO model. Kondogbia was transferred from RC Lens to Sevilla on the same date as the signing of the ERPA (26 July 2012) for €3 million. With the objective of obtaining 100% of the Economic rights, Doyen paid RC Lens the full amount of the transfer fee. In turn, Sevilla would buy from Doyen 50% of the economic rights for €1.65 million. Even though the minimum transfer fee was set by the parties at €6 million, Kondogbia was sold only one year later to AS Monaco for a staggering €20 million. An excellent deal for Doyen, which registered a profit of €7.89 million.[5] This ERPA is an example of a collaboration between a club and an investment fund, which has been highly profitable for both. With the “help” of Doyen, Sevilla managed to sign a young player and sell him for a profit not long after. However, as can be seen below, even Sevilla has signed ERPAs that have not been very beneficial for the club.

A second “successful ERPA” signed between Doyen and a Spanish club was the ERPA between Doyen and Getafe for Barrada. Similar to many other ERPAs, it stipulated that Getafe was not able to obtain financial support from the banking system due “to the current financial crisis”. Therefore, Getafe decided to sell 60% of the economic rights of one of its most promising young players for €1.5 million to Doyen. Both parties agreed that the minimum transfer value of Barrada was €5 million. Consequently, as can be deducted under paragraph 7 of the ERPA, Doyen’s minimum return would always be at least €3 million (60% of €5 million), guaranteeing Doyen a profit of €1.5 million (€3 million minimum return minus €1.5 million grant fee). The minimum return was easily surpassed after Barrada was transferred to Al-Jazira for €8.5 million in 2013. In accordance with Doyen’s own figures, the investment fund obtained €3.35 million for this transfer, a profit of 223%.[6]

The many “failed” ERPAs

Atlético Madrid was no novice to the practice of TPO when it sold 50% of Joshua Guivalogui’s economic rights for €5 million to Doyen. As can be seen from the ‘Map of Deals’, Atlético had previously sold 33% of the economic rights of the highly successful Atlético player, Falcao, to Doyen for €10 million. His later transfer to AS Monaco for €43 million was probably also economically beneficial for Atlético. Guivalogui, however, has been less successful wearing an Atlético shirt. He has played seven games in total for the club in two-and-a-half years, having been loaned to St-Étienne for the 2013-14 season, and to VfL Wolfsburg for the 2014-15 and 2015-16 seasons. If Wolfsburg decides to lift the option it has to buy Guivalogui for €4 million[7], Atlético Madrid will probably need to pay an additional amount to Doyen in order to reach the agreed minimum fee of €6.5 million.[8]

As regards Sevilla FC, where the ERPA concerning Kondogbia can be seen as “successful”, Babá’s ERPA tells a completely different story. Sevilla sold 20% of Babá’s economic rights for €660.000 to Doyen in 2012. Nonetheless, Babá never managed to secure a spot in the Sevilla squad and he was loaned out to Getafe and Levante between 2013 and 2015. After his contract expired with Sevilla in the summer of 2015, he moved back to his former club Marítimo as a free agent. Although Sevilla did not receive a fee for this transfer, Doyen still obtained a guaranteed profit of €148.000, as can be seen from the ‘map of deals’.

The Guivalogui ERPA and the Babá ERPA tell a similar story. Both players did not fulfil the expectations the clubs had of them at the moment Doyen bought parts of their economic rights. As a result, they were transferred, or are going to be transferred, for an amount well below the agreed minimum return. A similar run of events occurred with Luís Martins and Dorlan Pabon. Both players were not successful at Granada and Valencia respectively, and were transferred at a loss for the club. The exact figures of the transfers can be found in the table below.

The ERPA’s signed between Doyen and Sporting de Gijón are particularly interesting in terms of “failure”, because they illustrate perfectly the desperate situation the club found itself in. Sporting has been on the verge of disappearing not once, but several times in the last 10 to 15 years. In 2005, its total debt amounted to €51 million, with more than half owed to the public authorities. As a result, the club entered bankruptcy proceedings. In 2007, a settlement was reached between the club and its creditors. Even though the club still had a debt of €35.8 million, a Spanish court decided to terminate the bankruptcy proceedings. By the second half of 2011, the club presented a positive balance sheet at the shareholders’ general assembly for a fifth year in a row, but in reality Sporting was still acute financial difficulties, as the club would admit later on. It is this acute need for money that made the club turned to Doyen twice in less than a year. The fact that Sporting de Gijón is still alive today (albeit in danger of relegating to the second division), makes one wonder whether the ERPA with Doyen actually aided the club in its fight for survival or whether it worsened the situation in a similar way as FC Twente’s.

The first agreement concerns the purchase for €2 million of part of the economic rights of nine players who, at the time of signing, were registered as Sporting players.[9] Future transfers of one or more of these players would need to generate a profit of €7 million for Doyen.[10] The lifespan of the first agreement was not very long, as it was replaced by a second ERPA on 22 March 2012. Indeed, Sporting de Gijón stated officially on 23 February 2016 that the first ERPA never deployed any legal effects.

The first ERPA and the second ERPA between Doyen and Sporting show some clear similarities. For an amount of €2 million, Doyen buys 25% of the economic rights of all the players of both the first team and Sporting B (the second team).[11] This percentage remains 25% until Doyen obtains an amount of €7 million from the transfers of Sporting players to other clubs. Once this amount is reached, the percentage will be reduced to 15% until a further €3 million is earned by Doyen. Therefore, the minimum return Doyen should get is that of €10 million. Should Doyen not have received €7 million or more by 31 January 2015, the percentage of the economic rights owned by Doyen of all the Sporting and Sporting B players will be increased to 35%. Doyen's share of the economic rights would also increase to 35% if the club relegates from the first division (clause 2.5). A further important element of the ERPA is clause 4.1, by which Sporting names Doyen as the exclusive agent (intermediary) of the club for all transfer and loan operations of Sporting players. 

By using the ‘map of deals’ and transfermarkt, we have listed all Sporting and Sporting B players sold after March 2012. These players were:

-          Davud Barral – sold for €2 million to Orduspor on 5 July 2012;

-          Alberto Botía – sold for €3 million to Sevilla FC on 11 August 2012;

-          Miguel de las Cuevas – sold for €1.2 million to CA Osasuna on 1 July 2013;

-          Óscar Guido Trejo – sold for €2.7 million to FC Toulouse on 19 July 2013;

-          Borja López - sold for €2.2 million to AS Monaco on 2 August 2013;

-          Stefan Scepovic - sold for €2.56 million to Celtic FC on 1 September 2014.

A closer look at the ‘map of deals’ shows one important discrepancy compared to the ERPA of 22 March 2012. The share of economic rights owned by Doyen were not 25% (as stipulated in the ERPA), but 45%. Thanks to footballleaks' release of the so-called 'Escritura de Liquidación' on 14 April we now know what caused this increase. Firstly, in accordance with clause 2.5 of the ERPA, the economic rights owned by Doyen of all the Sporting players (except Botía and De las Cuevas) increased to 35%, since Sporting relegated to the second division in May 2012. Secondly, being an intermediary in all of these transfers, Doyen was entitled to an additional 10% of all the income generated from the transfers.[12] The ‘map of deals’ shows that the transfers of Sporting players has so far led to Doyen receiving more than €3.5 million, a profit of about €1.5 million for their €2 million investment. Nonetheless, this figure is still well short of the minimum return Doyen expects to get of €10 million. In other words, should the ERPA still be in force, Sporting is still required to sell more players if it is to meet its obligations towards Doyen.

Table summarizing the analysed ERPA’s signed between Doyen and Spanish clubs

Conclusion

The reason that many Spanish clubs decided to sell economic rights of players to companies like Doyen from about 2011 to 2015 (the year FIFA banned the practice) is relatively straightforward: The financial crisis was heavily felt in Spanish football, with many clubs incapable of paying off high debts owed to the public authorities. Moreover, the difference between the financial and competitive power of Real Madrid and FC Barcelona on the one hand, and all the other clubs on the other was only getting bigger. Not only did competing at national level become close to impossible, even smaller clubs from England were generating more than twice the revenues of Spanish clubs. The chances of being successful at European level were at risk.

Doyen was basically at the right place, at the right time. The ‘small’ Spanish clubs were in desperate need for money, either to compete or simply to survive, and Doyen was willing to give them this money in return for (part of) the economic rights of their football players. From the outside, it looks like a perfect match between club and investment fund. However, was TPO profitable for Spanish football clubs from a competitive and financial perspective?

From a financial perspective, the business is clearly lucrative for Doyen. As can be seen in the table, by investing €19.335 million it so far made a profit of €15.757 million.[13] In other words, an 81.5% profit! The same cannot be said for the clubs. Only the transfers of Barrada from Getafe to Al-Jazira and Kondogbia from Sevilla to AS Monaco were profitable. For all the other ERPAs, it appears that an a posteriori compensation to Doyen was necessary, because the amount obtained through the transfer could not cover the minimum return secured to Doyen in the ERPAs.

The legal discussions on TPO to a large extent focused on whether the practice leads to an unauthorized influence of third parties on the internal governance and policies of a club; and on whether a complete ban is contrary to (EU) competition law. Yet, the aspect that remains underexposed in the author’s opinion is the severe negative financial effect TPO can have on a football club. As we have discussed a couple of months ago in a blog on FC Twente, the financial position of the Dutch club deteriorated after signing the ERPA to such an extent that the club is now in serious danger of disappearing all together.

It is possible, though unlikely, that FC Twente’s downfall was an exception.  However, one should not underestimate Sporting de Gijon’s current financial situation, for example. A closer look at the ‘map of deals’ tells us that in March 2015 Sporting had only paid €250.000 of the €3.5 million it owed Doyen. A total debt of at least €3 million was confirmed in an official joined statement, dated 29 February 2016. The statement further holds that this debt has to be repaid before 2019, but one cannot help thinking that, for a club like Sporting de Gijón, this is easier said than done. Getting the money from future transfers should be complicated if Sporting only partially owns the economic rights of its own players, plus a looming relegation to the second division at the end of this season will not be beneficial either.[14]

[1] More information on the TPO ban can be found in our previous Blogs, such as “Blog Symposium: FIFA’s TPO ban and its compatibility with EU competition law – Introduction”.

[2] The total amount generated for the 2010/11 season was €641, see Mail Online, “Barca and Real consider sharing TV rights to make La Liga more competitive”; The total amount generated for the 2014/15 season was €742.5 million, see Marca, “Así será el reparto del dinero televisivo”.

[3] As of the 2016-17 season, The English Premier League will make €2.1 billion per year, see Mail Online, "Premier League set for £3bn windfall from global TV rights as rival broadcasters slug it out to screen England-based superstars"

[4] More information on the selling of TV rights in football can be found in our previous Blogs, such as “Why the European Commission will not star in the Spanish TV rights Telenovela”.

[5] See: Map of deals and transactions updated until 10 March 2015.

[6] See: Map of deals and transactions updated until 10 March 2015.

[7] Transfermarkt - Josuha Guilavogui.

[8] The original minimum return of €5.5 million set in September 2013 was increased every year by €500.000 until 1 September 2015, since Doyen continued to own 50% of the Guilavogui’s economic rights.

[9] The players concerned were Roberto Canella Suárez, Álvaro Bustos Sandoval, Alejandro Serrano García, Abdou Karim Tima, Mendy Formose, Juan Muñiz Gallego, Sergio Álvarez Díaz, Óscar Guido Trejo and David Barral Torres.

[10] In the first phase, Doyen receives a percentage of 50% of the economic rights of the nine players until Doyen received an amount of €5 million for the transfer of one or more of those players. After Doyen receives its first €5 million, Doyen’s ownership of the economic rights of the remaining players is to be reduced to 40% until Doyen received an additional €1 million. Once Doyen receives this additional €1 million, Doyen’s ownership of the economic rights of the remaining players would be reduced to 30% until Doyen again receives €1 million from the selling of those players. Consequently, the agreement stipulates that Doyen is to receive an amount equal or superior to €7 million for the transfer of players in which it partly owned the economic rights.

[11] As an exception, Doyen only gets 10% of the economic rights of the players Alberto Botía and Miguel de las Cuevas.

[12] Moreover, the 20% of the transfer fee for De las Cuevas that Sporting owed Doyen consisted of 10% for the economic rights and 10% as an agency fee.

[13] This figure might even get higher when taking into account that Doyen had a share in all Sporting de Gijón players and the fact that Pedro León is still registered as a Getafe player.

[14] With seven matches to go, Sporting finds itself in 17th place.

Editor's note: Dr Rishi Gulati is Associate Professor in International Law at the University of East Anglia (UK) and Barrister in Law. He has a PhD from King’s College London, Advanced Masters in Public International Law from Leiden University, and a Bachelor of Laws from the Australian National University. Amongst other publications, he is the author of Access to Justice and International Organisations (Cambridge University Press, 2022). He has previously worked for the Australian Government, has consulted for various international organizations, and regularly appears as counsel in transnational cases.

On 1 December 2024, Jay Shah, the son of India’s powerful Home Minister and Modi confidante Amit Shah, will take over the role of the Independent Chair of the International Cricket Council (ICC). This appointment reflects the influence India now has on the governance of cricket globally. A key test Jay Shah will face is whether or not the ICC should suspend the Afghanistan Cricket Board (ACB) from its membership as Afghanistan no longer maintains a women’s cricket team contrary to the organization’s own rules, as well as its human rights responsibilities. 

The Post-Taliban Situation for Women’s Cricket in Afghanistan

As is well known, following the highly chaotic US withdrawal from Afghanistan in 2021, the Taliban returned to power in that country. Since its return, the Taliban has banned education for young women and teenage girls, severely restricted their right to work, outlawed women’s voices being raised in public, issuing at least 100 decrees and edicts institutionally and systematically violating Afghan women and girls’ basic freedoms recognised in international law. 

In June 2024, the UN Special Rapporteur on human rights in Afghanistan said that “[t]he system of discrimination, segregation, disrespect for human dignity and exclusion institutionalized by the Taliban is motivated by and results in a profound rejection of the full humanity of women and girls.” It should then come as no surprise that women in Afghanistan are not allowed to play domestic cricket in that country any more. Further, the Afghanistan women’s cricket team no longer plays international cricket for the Taliban does not allow it. All the gains made in the pre-Taliban period, where the sport in that country had made genuine advances, were lost in a moment.

The ICC’s obligations to Afghanistan Women’s Cricket

As a global body that regulates international cricket, the ICC rightly enjoys independence in its working. However, this independence does not mean that the ICC should be unaccountable and be able to evade or avoid its human rights responsibilities. In respect of its obligations to Afghanistan’s women cricket, it cannot be said that the ICC is living up to those responsibilities.

Indeed, global sporting bodies are powerful transnational institutions to whom the most basic human rights obligations ought to apply. Amongst other things, the UN Guiding Principles on Business and Human Rights (UNGPs) which some sports bodies have voluntarily adopted require them to ensure compliance with internationally recognised human rights standards, including on non-discrimination, and the need to provide an effective remedy to those adversely affected (see especially Principles 11-29 of the UNGPs).

Although the words “human rights” do not appear in its Articles of Association (the ICC is incorporated as a company limited by guarantee in the British Virgin Islands), the organization’s own rules do indeed facilitate non-discriminatory participation of women in the sport, albeit in a roundabout way. 

ICC members, which the ACB is, must be run independently, i.e., without government interference (para. 2.4, ICC Articles). If there is governmental interference, then the member cannot maintain its membership (para. 2.8, ICC Articles). Specifically on women’s participation in the sport, where pathways for women’s cricket are lacking, and a member does not maintain a women’s cricket team, its membership ought to be suspended for this would appear to constitute a serious breach of its obligations as a Member (para. 2.10, ICC Articles; also see the ICC membership criteria).

Due to the Taliban’s ban on women’s sport, interference in the ACB’s affairs is manifest. Crucially, there are no pathways for girls and women to play cricket in Afghanistan, with that country failing to maintain a women’s cricket team. There is a clear basis for suspending the Afghanistan Cricket Board (ACB) from its membership. As Goldschmidt has explained, “Afghanistan, on even the loosest assessment, is not meeting the requirements prescribed by the ICC’s governance arrangements. 

While it would be preferrable if the ICC were to expressly adopt human rights principles in its governance arrangements, in the case at hand, its current framework already allows it to live-up to the organization’s human rights responsibilities through a straightforward application of its rules. Afterall, South Africa was suspended from international cricket between 1970 and 1991 during the Apartheid regime in that country. But why is this double standard allowed to continue? 

How the ICC may respond to the conundrum?

It has been said, “the ICC has been keen to stress that it does not recognise the Taliban as the legitimate ruling authority, and hence will “not penalise the ACB, or its players, for abiding by the laws set by the government of their country.” It is perhaps understandable that the ICC wishes to ensure that Afghan men can continue to play international cricket, thus, expelling the ACB is a difficult proposition.

However, until women’s cricket is restored in Afghanistan, suspending the ACB from the ICC would be an apt action that is not only in line with its own rules, but entirely consistent with the organization’s human rights responsibilities. If taking a strong stance against what some call gender apartheid against girls and women in Afghanistan means that the men’s cricket team may not be able to participate in international cricket, then this is a price that must be paid. As unfortunate as this state of affairs may be, it does not constitute an exception to the ICC’s human rights responsibilities.

-This does not mean that Afghan men’s and women’s cricket teams cannot take part in cricket at all. Most women cricketers from that country fled to western states following the Taliban take-over. Representatives from the former Afghanistan women’s cricket team presently based in Australia requested the ICC for permission to play as an Afghan refugee team, stating: : “Creating a team of Afghan refugees can give us a chance to play, coach and administer a cricket team without borders…The creation of this team will allow all Afghan women who want to represent their country to come together under one banner.” 

An appropriate response would be to allow the establishment of a women’s refugee cricket team. There is nothing stopping the ICC to allow the men to do the same should the ACB be suspended. 

Doing so does not only help the ICC to abide by its human rights responsibilities, but also assists the organization to mitigate any potential issues arising with respect to cricket’s participation in the 2028 LA Olympics at which cricket will make a much awaited return. Indeed, the ICC is a member of the Olympic Movement, and given the International Olympic Committee’s increased emphasis on human rights considerations throughout its operations, the need for the ICC to live up to its human rights responsibilities is correspondingly pressing.

Editor’s Note: Shervine Nafissi (@SNafissi) is a Phd Student in sports law and teaching assistant in corporate law at University of Lausanne (Switzerland), Faculty of Business and Economics (HEC).

Introduction

The factual background

The dispute concerns a TPO contract entitled “Economic Rights Participation Agreement” (hereinafter “ERPA”) concluded in 2012 between Sporting Lisbon and the investment fund Doyen Sports. The Argentine player was transferred in 2012 by Spartak Moscow to Sporting Lisbon for a transfer fee of €4 million. Actually, Sporting only paid €1 million of the fee while Doyen Sports financed the remaining €3 million. In return, the investment company became the owner of 75% of the economic rights of the player.[1] Thus, in this specific case, the Portuguese club was interested in recruiting Marcos Rojo but was unable to pay the transfer fee required by Spartak Moscow, so that they required the assistance of Doyen Sports. The latter provided them with the necessary funds to pay part of the transfer fee in exchange of an interest on the economic rights of the player.

Given that the facts and circumstances leading to the dispute, as well as the decision of the CAS, were fully described by Antoine Duval in last week’s blog of Doyen vs. Sporting, this blog will solely focus on the decision of the Swiss Federal Supreme Court (“FSC”) following Sporting’s appeal against the CAS award. As a preliminary point, the role of the FSC in the appeal against CAS awards should be clarified.

Scope of the Federal Supreme Court’s review as for the international arbitral awards

Since the CAS has its seat in Lausanne, Switzerland, it has adopted its procedural rules in accordance with the 12^th chapter of the Swiss Private International Law Act[2], which provides a general legal framework for international arbitration in Switzerland. Under the relevant provisions of the Swiss PILA, arbitral awards are final upon their notification and can only be challenged before the Swiss Federal Supreme Court on a very limited number of grounds in order to prevent the parties to arbitrate again the dispute before a state Court.[3] Besides, in Swiss law, there is only one level of appeal against an international arbitration award before the Federal Supreme Court.[4] Thus, the FSC “ensures a uniformity in the review of arbitral awards and the development of a consistent court practice” be being the only one instance for appeals.[5] In this way, “arbitral awards are always reviewed by the same State court, ensuring consistency”.[6]

Setting aside the award may only be possible where the sole arbitrator has been improperly appointed or where the arbitral tribunal has been improperly constituted, where the arbitral tribunal has wrongly accepted or denied jurisdiction, where the arbitral tribunal has ruled beyond the claims submitted to it, or failed to decide one of the claims, where the principle of equal treatment of the parties or their right to be heard in an adversary procedure has not been observed, where the award is incompatible with public policy.[7] In casu, the examination of Sporting Lisbon's claims is based on the incompatibility of the award with public policy within the meaning of Art. 190 para. 2 let. e PILA.

As a reminder, an award is inconsistent with public policy if it disregards those essential and broadly recognized values which, according to the prevailing values in Switzerland, should be the founding stones of any legal order.[8] “An award is contrary to substantive public policy when it violates some fundamental principles of the law applicable to the merits to such an extent that it is no longer consistent with the notions of justice and system of values; among such principles are, in particular, the sanctity of contracts, compliance with the rules of good faith, the prohibition of abuse of rights, the prohibition of discriminatory and confiscatory measures, as well as the protection of incapable persons. (…). If it is not easy to define substantive public policy positively and to set its boundaries with precision, it is easier to exclude one item or another from it. The entire process of interpreting a contract and the legal consequences logically drawn therefrom are excluded; so is the interpretation of the statutory provisions of a private law body by an arbitral tribunal. Furthermore, it is not sufficient to show incompatibility with public policy – a concept more restrictive than arbitrariness – by showing that the evidence was wrongly assessed, a factual finding manifestly wrong, or a rule of law clearly violated”.[9]

Thus, the examination of this international arbitral award by the FSC is limited to the question of the compatibility of the said award with public policy, a notion more restrictive than arbitrariness.

The judgement of the Federal Supreme Court of Switzerland - the merits

Sporting Lisbon’s defence

First, the Portuguese club tried to demonstrate that the CAS award violated material public policy by giving effect to one-sided and usurious contracts including excessive restriction.[10]

The claim is based on figures from the ERPA contract. Considering that Doyen Sports invested €3 million at the beginning, the company managed in all cases with 12.36% of minimum return insofar as it activated the Put Option, or 40% if the company requested payment of the Minimum Interest Fee. These two scenarios did not take into account the possibility that the player concerned by the ERPA be transferred with a capital gain, thus enabling Doyen Sports to get an investment return of about 400%, as was the case for the transfer of Marcos Rojo to Manchester United.

Sporting Lisbon compared this investment return to its own, as it would only be left with €1 million, i.e. the 5% of the transfer fee once the 75% for Doyen Sports’s share and the 20% for Spartak Moscow’s share deducted. Therefore, according to the Portuguese club, the ERPA, which it describes as a partiary loan[11], infringes the provisions on usury, would be a one-sided contract and, accordingly, would be null and void under Swiss law.[12]

Secondly, Sporting Lisbon explained that it gave up its freedom of action in an unacceptable manner under and art. 27 of the Swiss Civil Code (protection of one’s legal personality against excessive restrictions).[13] Indeed, some clauses of the ERPAs required Sporting Lisbon to accept a transfer offer deemed sufficiently high, if not Sporting would be forced to pay Doyen Sports 75% of the proposed transfer fee without receiving any fee, precisely because of the absence of any transfer.[14] According to the Portuguese club, Doyen Sports was not only in a position to ask Sporting Lisbon to transfer Marcos Rojo even if the club preferred to keep the player in its squad for purely sporting reasons, but also to require the club to make its best efforts to transfer the player before the end of his employment contract. Sporting Lisbon further underlined that the ERPA is made up of clauses stipulating that the club, conscious of the harshness and the severity of the consequences of certain clauses, takes the commitment to consider these clauses as fair and a necessary condition to Doyen’s interest in the player’s economic rights.

Thirdly, the club considers that the award of the CAS violates material public policy because it gives effect to contracts that seriously disregard the personality rights and the fundamental rights of the players. ERPA contracts would seriously undermine the players by putting pressure on the club by various clauses, including a clause obliging it to pay to Doyen Sports a minimum amount of €4.2 million (the Minimum Interest Fee) in the event that Marcos Rojo is not transferred to another club before the end of his employment contract. Such a clause would force Sporting to do everything possible to encourage the player to leave the club before the expiration of the employment contract. Thus, the player, even though he is not a party to the contract, would see his right to free economic development restricted, if not annihilated, in particular his ability to take the appropriate decisions for his sporting career and to freely choose the club for which he intends to play.[15] As regards fundamental rights, Sporting Lisbon argues that the ERPA-mechanism allows a third party to indirectly decide whether the player concerned by the ERPA must continue to play for his club or whether he must accept the conclusion of a contract with another club. Such a situation would violate the prohibition of forced labor set out in Art. 4 para. 2 ECHR and, more generally, human dignity.[16]

Finally, according to Sporting Lisbon, there should be a shared conception of moral standards in the field of sport in general and football in particular. These standards should not only prevent players from becoming an object of speculation, but also prevent investors to take advantage of the financial difficulties of the clubs. By taking advantage of clubs in financial difficulty, investors make indecent profits, while the clubs lose control of the situation from the sporting point of view. The standards would help to strengthen contractual stability, which is a cardinal principle of the transfer system.

The FSC’s Decision

The FSC first considered the figures provided by Sporting Lisbon with regard to the calculation of the minimum return of 12.36% (insofar as the Put Option is activated) and 40% (in case Doyen requests payment of the Minimum Interest Fee), and found that these figures were based on a calculation over three and five years respectively. Consequently, if the calculation of the investment return was made over one year, this would have given interest rates lower than 15%, which would be lawful under Swiss law. In addition, the arguments based on Doyen Sports’ investment return of about 400% with the transfer of Rojo were considered as irrelevant. These figures cannot be qualified as interests, but only as a kind of remuneration of the lender, which depends on the amount of the transfer fee, thus being similar to a partiary loan paid by giving a share to the lender on the profit realized by the borrower in a subsequent transfer operation.[17] Therefore, assuming that the relationship between the two parties is a lender-borrower relationship, the fact that Doyen Sports could acquire 75% of the future transfer fee of the player for whom it had initially financed the transfer at Sporting Lisbon for an equivalent share (i.e. €3 million out of €4 million), is not an usurious, one-sided contract, nor immoral.

Finally, the particular aspect of this type of contract relates to the enormous capital gains that can be made with the transfer operation, in casu about 400%. Nevertheless, the FSC considers that this capital gain depends on predominantly random elements.[18] The fact that Marcos Rojo played well at the 2014 World Cup, and that the Argentine selection reached the final of this competition, could not be foreseen. Thus, the sudden increase in his value on the transfer market is totally uncertain and cannot be invoked as a claim against Doyen Sports.[19] Moreover, the FSC recalled that the opposite situation was also possible, i.e. a drastic loss of the value of the player based on his performance in selection and club. These elements can therefore not be objectively taken into account by the parties. At the end of its reasoning on this issue, the FSC took the liberty to criticize Sporting Lisbon by saying that the club would not have been offended by such capital gain if it had been the sole beneficiary of the transfer fee.[20]

Secondly, the FSC analyzed the argument put forward by Sporting Lisbon that the ERPA contract would seriously undermine its freedom under Art. 27 CC. It should be kept in mind that, according to case-law, a breach of that provision does not necessarily mean a violation of public policy. Such a violation is instead conceivable only in case of a blatant and grievous violation of a fundamental right.[21] It must be considered in this respect that a contractual limitation of economic freedom is disproportionate within the meaning of Art. 27 (2) CC only when the debtor submits to someone else’s arbitrariness, gives up his economic freedom or restricts it in such a way that the foundation of his economic existence is jeopardized.[22] In casu, the FSC recalls that Sporting Lisbon is not inexperienced in the sharing of economic rights insofar as Marcos Rojo was not the only Sporting player affected by this type of contract.[23] It was the club that took the initiative to contact Doyen Sports to request its financial assistance. The conclusion of the contract was also preceded by lengthy negotiations during which the club was assisted by experts and lawyers. Finally, the dispute with Doyen Sports concerning Marcos Rojo was not in itself able to deteriorate the club’s financial situation, and thus preventing it from pursuing its economic activities.

Thirdly, the FSC examined the claim concerning the personality and fundamental rights of the players concerned by an ERPA.[24] The judges considered that the club limited itself to purely theoretical reflections without, however, demonstrating in concrete terms how the ERPA contract would seriously undermine the aforementioned rights. To the extent that the FSC has limited power to review international arbitral awards, it is hardly theoretical arguments that will demonstrate that a CAS award violates public policy according to Art. 190 para. 2 let. e PIL. Moreover, Sporting Lisbon’s argument concerning the personality and fundamental rights of Marcos Rojo is incompatible with the fact that the club has used the TPO mechanism for several other players. Again, the FSC questioned the sincerity of this argument had Sporting Lisbon received the full amount of the transfer fee. Furthermore, although the FSC recognizes the quality of the club to report a violation of the player’s personality rights[25], it is not established by the judges that the players themselves have complained of any such violation. On the contrary, when he signed for Manchester United, Marcos Rojo would have welcomed the fact of joining one of the best clubs in the world. Marcos Rojo, who was earning the equivalent of €1.14 million in Sporting Lisbon, currently earns about €4 million per year at the English club. Therefore, it is somewhat bold on the part of Sporting Lisbon, according to the FSC, to put forward the prohibition of forced labor or the violation of human dignity in such circumstances.

Finally, The FSC did not want to admit a notion of moral standards in the field of sport in general, and football in particular, in relation to the definition of the concept of material public policy.[26] Apart from the fact that it seems difficult to determine what is a moral standard in football, to adapt the concept of material public policy in relation to a particular activity and, more importantly, to a particular branch of the activity concerned - in this case, sport or football - would in some way soften the force and reduce the scope of the concept by leaving to FIFA the task of defining the notion of morality proper to football. The result would be a dilution of the notion of material public policy and, consequently, an increased difficulty in defining the contours of this concept, not to mention the formation of a casuistry that is not favorable to the predictability of the law.

In conclusion, the FSC recalls that the high mobility of professional footballers and their frequent transfers are caused by FIFA regulations, in particular the rules relating to the maximum duration of an employment contract binding a Player to a football club and the conditions of a subsequent transfer of that same player to another club, but also by the manner in which the transfer system is applied.[27]

For all these reasons, the Federal Supreme Court rejected Sporting Lisbon’s appeal against the CAS award of 21 December 2015.

Conclusion

Following the award of the CAS, the FSC confirmed the validity of the ERPA contracts under Swiss law. The mechanisms that make up the agreements signed by Doyen Sports and other companies that invest in the player transfer market are based on traditional legal instruments, including the assignment of future receivables. Thus, from a Swiss legal point of view, TPO agreements do not undergo the same moral reprimand administered by the highest football bodies, such as FIFA, UEFA or FIFPro.

Consequently, the legal battle that resulted in a victory for the “pro-TPOs” and the model proposed by the third parties, challenges the legitimacy of FIFA regulations and, more specifically, Art. 18^ter RSTP. The arguments used by Sporting Lisbon to justify the early termination of the ERPA contract are very similar, or even identical, to those presented by FIFA to justify the formal ban of the TPO in May 2015.

Nevertheless, the fact that Swiss contract law is quite liberal does not exclude the invalidation of an ERPA for material public policy reasons. As we have seen with Football Leaks, the TPO mechanism can constitute a definite threat to the financial situation of clubs, such as FC Twente. It all depends on the case brought before the courts. Indeed, the case of Sporting Lisbon was not necessarily the best opportunity to challenge the validity of the contract, as the action of Art. 21 CO was time-barred (as mentioned in the previous blog on the initial CAS award) and the player joined, voluntarily, one of the best clubs in the world.

I believe that Art. 21 of the Swiss Code of Obligations (unfair advantage) as well as Art. 27 CC and 28ss CC (personality rights) may, depending on the case before the CAS, be a legal basis for the invalidation of the contract. To the extent that a dispute arises between an inexperienced club and an investment company, the application of Art. 21 CO is not totally excluded. In addition, if a player whose economic rights have been assigned to a third party is obliged to leave the club against his will or even join a club for whom he does not wish to play, the provisions on personality rights may find an echo at the CAS.

All eyes are on other courts where ‘TPO-cases’ are pending. Most importantly, the CAS should soon issue an award in the Doyen Sports and FC Seraing United v. FIFA case. As a reminder, in January 2015, the Belgian club and Doyen Sports concluded an ERPA contract despite the FIFA ban being enacted in December 2014. As a result, the FIFA Disciplinary Committee sanctioned the Belgian club with a transfer ban (for four complete and consecutive registration periods) and a fine of CHF 150.000 for breaches relating to the third-party ownership and third-party influence. The CAS is therefore seized of an appeal against a disciplinary sanction imposed by FIFA and will be obliged to take Art. 18^ter RSTP into consideration and to judge whether the sanction is justified. It remains to be seen whether the arguments based on EU law by Doyen Sports and FC Seraing United will be taken into consideration. Indeed, both parties also filed a complaint, based on EU law, before the Belgian Courts to challenge the TPO ban.[28] For now, all these procedures have failed. It will be interesting to see how the CAS will judge the Seraing case that relates to the same mechanism although the two cases are fundamentally different. The Rojo case dealt with a contractual dispute before the ban, while the Belgian club and Doyen Sports challenged a sanction issued by FIFA and the ban as such.

In any event, TPO deals have rarely been so much under the public spotlight since their ban, and the legal suspense goes on…

[1]     Economic rights are the rights to future transfer fees from the transfer of the player to another club, and, unlike federative rights, economic rights can be divided between multiple parties. See, among others, W. Tyler Hall, After the Ban: The Financial Landscape of International Soccer After Third-Party Ownership, Oregon Law Review, Vol. 94, 2015, pp. 179 – 221.

[2]     Hereinafter “PILA”.

[3]     Mavromati, Despina, The Role of the Swiss Federal Tribunal and Its Impact on the Court of Arbitration for Sport (CAS), 29 September 2016.

[4]     Antonio Rigozzi, L'arbitrage international en matière de sport, Bâle, (Helbing & Lichtenhahn), 2^ème édition, 2005.

[5]     Niederer Kraft & Frey, Swiss Arbitration – Practical Aspects and New Developments, Publication 19, 2015, p. 28.

[6]     Ibidem.

[7]     Art. 190 para. 2 PILA.

[8]     ATF 132 III 389 consid. 2.2.3.

[9]     Judgment of the FSC, 4A_116/2016, December 13rd 2016, par. 4.1. The English translation is based on the Judgment of the FSC, 4A_304/2013, March 3rd 2014, par. 5.1.1 made by http://www.swissarbitrationdecisions.com (emphasis added).

[10]    Judgment of the FSC, 4A_116/2016, December 13rd 2016, par. 4.2.1.

[11]    Under Swiss law, the “partiary” loan is a form of loan in which the remuneration of the lender consists in a share of the borrower’s earnings. The “partiary” loan has a random element: the remuneration of the lender depends on the success of a specific business or transaction of the borrower. In casu, the ERPA can be qualified as a “partiary” loan insofar as the transaction depends on the profit made by Sporting in case of a transfer of Marcos Rojo and provides for a share of Doyen in Sporting’s success. See, Bovet / Richa, CO 312 N 6 in : Commentaire romand Code des obligations I, Pierre Tercier / Marc Amstutz (édit.), 2^ème édition, Bâle, 2012 ; Pierre Tercier / Laurent Bieri / Pascal G. Favre, Les contrats spéciaux, 5^ème édition, Genève Zürich Bâle (Schulthess) 2016, N 2539.

[12]    Judgment of the FSC, 4A_116/2016, December 13rd 2016, par. 4.2.1.

[13]    Hereinafter “CC”.

[14]    Judgment of the FSC, 4A_116/2016, December 13rd 2016, par. 4.2.1.

[15]    Judgment of the FSC, 4A_116/2016, December 13rd 2016, par. 4.3.1.

[16]    Ibidem.

[17]    Judgment of the FSC, 4A_116/2016, December 13rd 2016, par. 4.2.3.

[18]    Ibidem.

[19]    Ibidem.

[20]   Judgment of the FSC, 4A_116/2016, December 13rd 2016, par. 4.3.3.

[21]    Judgment of the FSC, 4P.12/2000, June 14^th 2000, par. 5b. aa.

[22]    Ibidem.

[23]    In March 2013, 35 to 40 players' economic rights were shared with various investment funds. See CAS 2014/0/3781, par. 217.

[24]   Judgment of the FSC, 4A_116/2016, December 13rd 2016, par. 4.3.3.

[25]    According to the exceptio de jure tertii principle, see Judgment of the FSC, 4A_304/2013, March 3rd 2014, par. 3.

[26]   Judgment of the FSC, 4A_116/2016, December 13rd 2016, par. 4.2.3.

[27]    Judgment of the FSC, 4A_116/2016, December 13rd 2016, par. 4.3.3.

[28]   Patricia Moyersoen, La décision du TAS du 21 décembre 2015 à propos des contrats de TPO passés entre le Sporting Club du Portugal et la société Doyen Sports Investments, http://www.droitdusport.com/; http://www.rfc-seraing.be/audience-au-tas-de-lausanne/.

Editor's note: Marjolaine is a researcher and attorney admitted to the Geneva bar (Switzerland) who specialises in sports and life sciences.

On 25 August 2020, the Swiss Supreme Court (Swiss Federal Tribunal, SFT) rendered one of its most eagerly awaited decisions of 2020, in the matter of Caster Semenya versus World Athletics (formerly and as referenced in the decision: IAAF) following an award of the Court of Arbitration for Sport (CAS). In short, the issue at stake before the CAS was the validity of the World Athletics eligibility rules for Athletes with Differences of Sex Development (DSD Regulation). After the CAS upheld their validity in an award of 30 April 2019, Caster Semenya and the South African Athletics Federation (jointly: the appellants) filed an application to set aside the award before the Swiss Supreme Court.[1] The SFT decision, which rejects the application, was made public along with a press release on 8 September 2020.

There is no doubt that we can expect contrasted reactions to the decision. Whatever one’s opinion, however, the official press release in English does not do justice to the 28-page long decision in French and the judges’ reasoning. The goal of this short article is therefore primarily to highlight some key extracts of the SFT decision and some features of the case that will be relevant in its further assessment by scholars and the media.[2]

It is apparent from the decision that the SFT was very aware that its decision was going to be scrutinised by an international audience, part of whom may not be familiar with the mechanics of the legal regime applicable to setting aside an international arbitration award in Switzerland.

Thus, the decision includes long introductory statements regarding the status of the Court of Arbitration for Sport, and the role of the Swiss Federal Tribunal in reviewing award issued by panels in international arbitration proceedings. The SFT also referred extensively throughout its decision to jurisprudence of the European Court of Human Rights (ECtHR), rendered in cases related to international sport and the CAS.

1.     Standing to sue before the SFT & admissibility of the challenge

As a preliminary matter, the SFT considered the standing to sue of both Caster Semenya and the South African Athletics Federation. Both were found to have an interest worthy of protection. Caster Semenya was considered to be particularly affected by the CAS award, since the DSD Regulation require her to fulfil certain requirements in order to participate in certain categories of races at international athletics events. As for the South African Athletics Federation, the SFT considered that as a member federation of World Athletics, it has a duty to cooperate with the international sports governing body and to support it in the implementation of the DSD Regulation, including to alert the medical manager in case it has a suspicion that an athlete might be falling within the scope of the DSD Regulation, so that it had an interest worthy of protection separate and distinct from Caster Semenya’s (para. 4.1.2).

The SFT then examined the clause of waiver to appeal CAS awards, enshrined in the DSD Regulation. Based on its jurisprudence originating in the Cañas matter, the SFT confirmed that an athlete cannot, as a rule, validly waive the right to challenge an award in sports arbitration matters before the SFT:

“It is all the more imperious that the will to waive the appeal be not vitiated through any form of constraint, since such waiver would deprive its author from the possibility to challenge any future award, even if the award should breach fundamental principles inherent to a State operating under the rule of law [… ]” (para. 4.2.4).

 Interestingly, the SFT found that its jurisprudence, developed based on the lack of free consent on part of those athletes, can be equally invoked by a national member federation with respect to arbitration clauses contained in the rules of its international governing body (para. 4.2.4).

2.     Independence of the CAS & role of the SFT

Before entering the merits of the case, the SFT stressed that it was essential to delimit the legal framework of the dispute, the role of the SFT when reviewing an appeal in international arbitration matters and the scope of its power of review (para. 5).

Citing its own Latuzina jurisprudence as well as recent ECtHR decisions in Mutu & Pechstein v. Switzerland, and Platini v. Switzerland, the SFT concluded, as to the status of the CAS:

“One must keep in mind that the appellants have been able to bring their dispute against IAAF before CAS, which is not only an independent and impartial court, with full power of review in fact and in law, but also a specialised jurisdiction” (para. 5.1.3).

The SFT then summarised its role and power of review when dealing with an international arbitration award. In particular, the SFT cannot – save in exceptional circumstances – consider issues of fact, and is bound by the facts as set out in the arbitration award. In addition, the SFT only reviews the award from the perspective of a limited set of grounds, listed in Art. 190(2) of the Swiss Private International Law Act (SPILA). The SFT insisted that the ECtHR

“has emphasised that there is a distinct interest in disputes arising within professional sport, in particular those with an international dimension, being submitted to a specialised jurisdiction capable of ruling in a prompt and cost-efficient way” (para. 5.2.4).

According to the SFT judges, State parties to the European Convention on Human Rights enjoy wide discretion as to how to approach alleged breaches of substantive provisions ECHR within proceedings for setting aside awards in international arbitration cases. Citing the example of Art. 8 ECHR and the freedom to exercise a professional activity, the SFT further recalled that a sports association – as a private entity – is not directly subjected to the ECHR. Positive duties of a State party to the ECHR to take action only arise to a certain extent, where necessary to establish a legal framework that appropriately takes into account the various interests at stake (para. 5.2.5).

In the light of these findings, the SFT concluded that the current Swiss legal system whereby review of international arbitration awards is subject to a set of exhaustive grounds, with a review of the merits of the decision essentially limited to breaches of public policy, and with strict requirements on the parties to assert and substantiate these grounds, is compatible with the ECHR.

3.     Breach of public policy

The SFT briefly discussed the two grounds of irregular constitution (art. 190(2)(a) SPILA) and right to be heard (art. 190(2)(d) SPILA) invoked by the appellants, and rejected them.

The SFT then went into what can be viewed as the real core of its decision: the analysis of the ground of breach of substantive public policy (art. 190(2)(e) SPILA). For doing so, it divided the breaches asserted by the Appellants into three limbs: i.) prohibition of discrimination, ii.) personality rights and iii.) human dignity.

The SFT started by recalling the well-established notion of public policy within the context of international arbitration, and its boundaries:

“An award is incompatible with public policy if it disregards essential and widely accepted values which, according to the views prevailing in Switzerland, should constitute the foundation of any legal system” (para. 9.1).

The SFT went on to insist that it is an extremely rare occurrence (“chose rarissime”) for arbitral awards to be set aside on this ground. The concept is more restrictive than arbitrariness, and the award must be incompatible with public policy not only in its reasoning, but also in its outcomes. Also, neither the breach of constitutional rights, nor of ECHR rights, can be invoked directly under this ground, even though principles underpinning the relevant provisions of the ECHR or of the Swiss Constitution can be taken into account to crystallize the concept of public policy (para. 9.2).

Critically, the SFT’s reasoning had to be based on the premises that the CAS award had set, whereby athletes targeted by the DSD Regulation enjoy – due to their levels of testosterone – an advantage over other female competitors that is ‘insurmountable’, in the sense that it would allow them to systematically beat female athletes without DSD (see e.g. para. 9.8.2). The SFT thus worked on the assumption that there were also two groups of interests in conflict, i.e. the ‘protected class’ (“classe protégée”) of the female category versus the class of the athletes with DSD. There are some indications within the decision, however, that the SFT judges probably largely endorsed the CAS findings (e.g. the extract: “the statistics are particularly compelling in this respect”, para. 9.8.3.3.).

Another important aspect of the case is that World Athletics – unlike many international federations – is not based in Switzerland but in Monaco, and is thus not organised as an association of Swiss law. Indeed, as the SFT stressed in several instances (e.g. para. 5.1.1, para. 9.1, para. 9.2), Swiss law was not applicable on the merits of the dispute and the case had no connection to Switzerland other than the seat of the arbitral tribunal that made the challenged award.

i.               Prohibition of discrimination

With respect to the first limb of discrimination, the SFT stressed that the prohibition of discrimination enshrined in art. 8(2) Swiss Constitution – aside from the fact that Swiss constitutional law was not applicable in the case in the first place – could only apply to the relationship between the State and individuals. The provision is aimed at protecting individuals from the State and does not deploy so-called ‘direct horizontal effect’ among private parties.

Thus, the SFT doubted that the prohibition of a discrimination originating from such private party could be characterised as part of the essential values that form public policy. The SFT did, however, find the appellants’ argument relevant whereby the “relationship between an athlete and a global sports federation shows some similarities to those between an individual and a State” (para. 9.4).

In the end, the SFT found that the issue could be left undecided, holding that, in any event, the award did not enshrine any discrimination contrary to public policy.

Indeed, even under Swiss constitution law, a discriminating measure based on one of the enumerated criteria (e.g. sex) can be justified if they rely on biological differences that categorically exclude an identical treatment (para. 9.5). The SFT found that the CAS had – in a 165-page award – conducted a thorough assessment of all arguments brought forward by the parties, dealing both with complex scientific issues and delicate legal questions (para. 9.8.3.1). The outcome reached by the CAS was, to the SFT, not only “not untenable, it was not even unreasonable” (para. 9.8.3.3).

To support its view, the SFT relied heavily on the notion of fairness of sports competition, referring in particular to the ECtHR decision on the whereabouts system (FNASS et al. v. France) in connection with anti-doping regulation. In a somewhat troubling parallel, the SFT summarised this decision as

“confirming thus that the search for a fair sport represents an important goal which is capable of justifying serious encroachments upon sportspeople’s rights” (para. 9.8.3.3).

Stressing that the case before it was not a doping matter (“no one challenges that athletes 46 XY DSD have never cheated”; para. 9.8.3.3), the SFT considered nevertheless that certain biological characteristics can also distort fairness of competition. Any binary division such as the one between male and female in athletics necessarily creates difficulties of classification (para. 9.8.3.3). In the SFT’s eyes, the DSD Regulation were a proportionate way of addressing these difficulties.

ii.              Breach of personality rights

With respect to the breach of an athlete’s personality rights under Art. 27 et seq. of the Swiss Civil Code, the SFT recalled its jurisprudence whereby a breach of personality rights can, in certain circumstances, amount to a breach of public policy – i.e. if there is a clear and severe violation of a fundamental right – but that these circumstances were not realised in casu (para. 10.1).

In particular, the SFT found that the measures provided under the DSD Regulation were not such as to affect the essence of the athlete’s physical integrity: the required examinations were to be conducted by medical professionals and might also be beneficial to the athlete by revealing medical data to those who were unaware that they had DSD, the treatments (oral contraceptives) were not compulsory in the sense that an athlete could not be compelled to take such treatment.

From the viewpoint of economic freedom, the SFT found that the matter was not comparable to the Matuzalem case – nota bene the first matter in which the SFT annulled an arbitral award based on grounds of substantive public policy – since the DSD Regulation could not be considered to make participation in the ‘specified competitions’ impossible, and athletes remain free to participate in races outside those specified categories, including at international level, so that their economic existence was not jeopardised. In addition, the DSD Regulation was to be considered a measure capable of achieving the legitimate goals of fairness in sport and the preservation of the ‘protected class’ of female athletes, and were necessary and proportionate to these goals (para. 10.5).

iii.            Human dignity

Finally, the SFT found that the DSD Regulation were not contrary to human dignity. On the one hand, the SFT considered that the CAS award did not seek to question the female gender of the athletes, nor to assess whether these were ‘female enough’.

“In certain contexts that are as special as competitive sports, one can accept that biological characteristics can, exceptionally and for purposes of fairness and equal opportunities, eclipse legal sex or gender identity of an individual. Otherwise, the sheer notion of a binary division man/woman, which is present in the vast majority of sports, would lose its raison d’être” (para. 11.1). 

On the other hand, with respect to the treatments at stake, the SFT merely reaffirmed that there was no compulsory treatment, in the sense that athletes retained the option to refuse such treatment:

“While it is true that such refusal will result in the impossibility to take part in certain athletic competitions, it cannot be accepted that this consequence could, in and by itself, amount to a violation of an individual’s human dignity” (para. 11.2).

Thus, to the SFT, the appellants’ reference to “humiliating pharmacological experiments” or to the notion of “human guinea pigs” appeared inappropriate.

Having found that the award was not in breach of public policy, the SFT found that the appeal had to be dismissed on this ground also.

Conclusion

Over the next days and weeks, many commentators will dissect the SFT decision. Unsurprisingly, reactions already point at the responsibility of Switzerland for failing to protect sportspeople, and the unsuitability of the current sports dispute resolution system for dealing with human rights issues.

These issues undoubtedly deserve a debate, if decisions rendered in international sports matters are to maintain – or, rather at this point, regain – their credibility.

From the perspective of the current Swiss legal system and international arbitration law, the SFT only had little leeway to navigate the delicate issues before it: the grounds cited in art. 190(2) SPILA – which apply to all international arbitration proceedings in Switzerland, whether commercial or sports-related – are exhaustive, and the SFT has so far systematically refused to broaden the notion of substantive public policy to give it a ‘sports-specific’ meaning for arbitration award rendered by the CAS. Moreover, the SFT cannot question the facts as set forth in an arbitral award. Finally, the SFT was asked to review the decision because of the seat of the CAS in Lausanne, but neither the athlete nor the international federation that had adopted the rules in dispute were based in Switzerland, and Swiss law was not applicable to the merits.

The SFT judges may, however, have missed an opportunity that was available to them de lege lata, in failing to use the ‘escape door’ of the severe breach of personality rights, interpreted as part of public policy. The very broad wording of the SFT jurisprudence in this context leaves a lot of discretion to adapt to individual situations in which the SFT judges may feel that there is something ‘unfair’ at stake. Though the SFT went to great lengths to distinguish the case from the Matuzalem matter, the situation in which athletes subject to the DSD Regulation are placed could arguably have been construed and framed in a way that would have fitted the requirements of this ground, if it had been the SFT’s desire to reach such a conclusion. The general impression, however, is that the SFT judges became genuinely convinced of the justification for the ‘protected’ female category and the fact that competitors subject to the DSD Regulation would enjoy an insurmountable advantage over other female competitors if they were authorised to compete freely in the specified competitions. In any event, it was not within their power of review to question these findings of the CAS award.

It may come as a disappointment to many that these difficult questions raising complex scientific issues could not be addressed in the context of the SFT proceedings. However, it is essential to keep in mind that, like the CAS in its award, the SFT did leave the door open for future challenges:

“That being said, the CAS did emphasise that the DSD Regulations could, at a later point, reveal themselves to be disproportionate in case it should prove impossible or excessively difficult to apply them. One is bound to admit that the CAS did not give validation, once and for all, to the DSD Regulations, but, on the contrary, explicitly reserved the possibility to conduct, as the case may be, a new assessment under the angle of proportionality when applying the regulation to a particular matter” (para. 9.8.3.5).

Thus, regardless of what avenues Caster Semenya may decide to take immediately with respect to the SFT decision, we may soon see new developments and new legal proceedings around the implementation of the DSD Regulation. The jury is still out.

[1] The author was consulted on sports arbitration issues in connection with this application to set aside.

[2] All extracts quoted are private translations by the author of the original decision in French.

Introduction 

The first part of this two-part blog on multi-club ownership in European football outlined the circumstances leading to the adoption of the initial rule(s) aimed at ensuring the integrity of the UEFA club competitions (Original Rule) and retraced the early existence of such rule(s), focusing primarily on the complaints brought before the Court of Arbitration for Sport and the European Commission by the English company ENIC plc. This second part will, in turn, introduce the relevant rule as it is currently enshrined in Article 5 of the UCL Regulations 2015-18 Cycle, 2017/18 Season (Current Rule). It will then explore how the UEFA Club Financial Control Body (CFCB) interpreted and applied the Current Rule in the Red Bull case, before drawing some concluding remarks. 

The Red Bull case: The concept of decisive influence

Background 

The company Red Bull GmbH (Red Bull) started building its football empire[1] in 2005 by transforming the Austrian club SV Wüstenrot Salzburg[2] into what would henceforth be known as FC Red Bull Salzburg (RB Salzburg). As regards its legal form, RB Salzburg is currently a limited liability company (GmbH) wholly owned by the association FC Red Bull Salzburg e.V. Until 2015, when the club began a disengagement process from Red Bull, the statutes of FC Red Bull Salzburg e.V. conferred on Red Bull the right to appoint and remove the members of the association's board.

In 2009, with the objective of playing the top-flight Bundesliga within a decade, Red Bull invested in the German club SSV Markranstädt, at that time competing in the fifth tier of German football. The club was subsequently rechristened as RasenBallsport[3] Leipzig (RB Leipzig) and rebranded. Although RB Leipzig thrived on the pitch, it attracted much criticism off the pitch for attempting to circumvent the so-called '50+1 rule', according to which German football clubs may not allow investors to acquire a majority of their voting rights.

Since Red Bull's takeover of RB Leipzig in 2009, the two clubs have maintained a close cooperation involving an increased transfer activity which has seen players moving from one club to the other on a regular basis. With the help of players like Naby Keïta, who moved from RB Salzburg to RB Leipzig in the summer of 2016, the German club finished second in the 2016/17 Bundesliga season, its first-ever in the top flight, and qualified for the 2017/18 UCL group stage. RB Salzburg, for their part, added in the 2016/17 campaign another domestic title to their collection and secured a spot in the 2017/18 UCL second qualifying round.

The Current Rule  

As mentioned above, the Current Rule is encapsulated in Article 5 of the UCL Regulations 2015-18 Cycle, 2017/18 Season (UCL Regulations). It preserves the structure of the Original Rule, making admission to the UEFA club competitions conditional upon fulfilment of three specific criteria. In terms of substance, however, the Current Rule differs in two important aspects. First, unlike the Original Rule which outlawed ownership, personal and other links only between clubs participating in the same UEFA club competition, the Current Rule extends this prohibition to clubs participating both in the UCL and the UEFA Europe League. Second, an individual or legal entity is now deemed to have control over a club not only if he/she/it (i) holds a majority of the shareholders' voting rights; (ii) is authorized to appoint or remove a majority of the members of the administrative, management or supervisory body; or (iii) is a shareholder and single-handedly controls a majority of the shareholders' voting rights, but also if he/she/it (iv) is able to exercise by any means a decisive influence in the decision-making of the club.[4] The purpose of this latter change is to address situations where an individual or legal entity falls short of having de jure control over a club, but nevertheless remains able to exercise such an influence that may, if exercised in more than one club, jeopardize the integrity of the UEFA club competitions. As will be discussed in the next section, the concept of decisive influence played a pivotal role in the Red Bull case.

Furthermore, the club coefficient no longer serves as a principal criterion in determining which of the two or more commonly owned clubs should participate in a UEFA club competition. Under the Current Rule, the club which qualifies on sporting merit for the more prestigious UEFA club competition is to be favoured.[5] If two or more commonly owned clubs qualify for the same UEFA club competition, then the club which was best-ranked in its domestic championship should be admitted.[6]

Proceedings before the CFCB

On 15 May 2017, soon after RB Salzburg and RB Leipzig had both secured their place in the 2017/18 UCL, the UEFA General Secretary dispatched a letter to the CFCB, expressing his concern that the clubs might not fulfil the criteria enshrined in the Current Rule. The subsequent investigation conducted by the CFCB Investigatory Chamber relied to a great extent on compliance reports prepared by independent auditors. On 26 May 2017, the CFCB Chief Investigator referred the case to the CFCB Adjudicatory Chamber, concluding that the clubs had failed to satisfy the criteria set out in the Current Rule and, as a result, only RB Salzburg should be admitted to the 2017/18 UCL.[7] In particular, the CFCB Chief Investigator suggested that Red Bull exercised decisive influence in the decision-making of both RB Salzburg and RB Leipzig, and identified several ways in which this influence manifested itself. For instance, the CFCB Chief Investigator drew attention to the presence of certain individuals allegedly linked to Red Bull in the decision-making bodies of both clubs or an unusually high level of income received by the clubs from Red Bull via sponsorship agreements.[8]

In its decision handed down on 16 June 2017, the CFCB Adjudicatory Chamber paid attention mainly to the changes made by RB Salzburg as part of the club's disengagement process from Red Bull. As noted above, Red Bull ceased to have the right to appoint and remove the board members of FC Red Bull Salzburg e.V. in 2015, when the association's statutes were amended accordingly. With this in mind, the CFCB Adjudicatory Chamber had to examine whether Red Bull was not able to exercise decisive influence in the decision-making of RB Salzburg (and RB Leipzig) by any other means.

The CFCB Adjudicatory Chamber was confronted with an onerous task, in particular because the UCL Regulations do not specify when an individual or legal entity is deemed to have decisive influence in the decision-making of a club. Nor do these regulations clarify how such a level of influence could be attained. Having examined the wording and purpose of the Current Rule, the CFCB Adjudicatory Chamber asserted that ''the benchmark for establishing decisive influence is a high one'',[9] finding support for its conclusion in the EU Merger Regulation.[10] For the avoidance of doubt, the Chamber further noted that the concept of decisive influence is not to be confused with that of significant influence which features in the UEFA Club Licensing and Financial Fair Play Regulations, Edition 2015.[11]

In determining whether Red Bull was indeed capable of exercising decisive influence in the decision-making of both clubs, the CFCB Adjudicatory Chamber observed from the aforementioned compliance reports that RB Salzburg had removed certain individuals allegedly linked to Red Bull from the club's decision-making bodies and terminated certain loan agreements entered into with the beverage company.[12] With the aim of refuting the CFCB Chief Investigator's allegations, RB Salzburg presented additional documentary evidence. According to the CFCB Adjudicatory Chamber, it followed from such evidence, inter alia, that Red Bull had reduced the amount of sponsorship money paid to the Austrian club or that a cooperation agreement between the two clubs had been terminated.[13] This evidence alleviated the CFCB Chief Investigator's concerns to such an extent that he eventually decided to withdraw his objection to the admission of RB Salzburg and RB Leipzig to the 2017/18 UCL.[14] Consequently, the CFCB Adjudicatory Chamber held that, at the time of its decision, Red Bull's relationship with RB Salzburg resembled ''only a standard sponsorship relationship''.[15] Having concluded that Red Bull did not have decisive influence in the decision-making of RB Salzburg, there was no need for the Chamber to consider Red Bull's relationship with RB Leipzig.[16]

Furthermore, the CFCB Adjudicatory Chamber verified whether one of the clubs did not exercise decisive influence over the other. In this regard, the Chamber referred to the cooperation agreement and the increased transfer activity between the clubs. Nonetheless, the Chamber eventually stated that there was insufficient evidence to arrive at the conclusion that RB Salzburg exercised decisive influence over RB Leipzig or vice versa.[17]

Further implications and concluding remarks

Rules aimed at ensuring the integrity of club competitions also exist at the national level. In England, the Rules of the Premier League stipulate, inter alia, that a person[18] – be it either natural person, legal entity, firm or unincorporated association – may not (i) be involved in or have any power to determine or influence the management or administration of more than one club participating either in the Premier League or the English Football League;[19] and (ii) hold or acquire any significant interest in more than one club participating in the Premier League. A person is deemed to have acquired significant interest in a club if he/she/it holds 10 per cent or more of the shareholders' voting rights.[20] In Spain, an individual or legal entity may not hold 5 per cent or more of the shareholders' voting rights in more than one club participating in a professional competition at the state level.[21]

It follows that both in England and Spain, the pertinent regulations set a relatively low threshold of the shareholders' voting rights that an individual or legal entity may not exceed in more than one club participating in the same domestic club competition. Moving back to UEFA, the Current Rule sets the relevant threshold at 50 per cent (majority of the shareholders' voting rights), but complements it with the 'catch-all' notion of decisive influence.

I believe that the CFCB Adjudicatory Chamber may have missed a golden opportunity in the Red Bull case to clarify further the rather vague concept of decisive influence. Unfortunately, the Chamber limited itself to stating that ''the benchmark for establishing decisive influence is a high one'',[22] without providing any concrete examples of how such a level of influence could be attained or manifested in practice.[23] The concept of decisive influence therefore remains shrouded in legal uncertainty. Moreover, in order to avoid speculations, the Chamber could have provided more details about the changes made by RB Salzburg. For instance, it could have specified which individuals allegedly linked to Red Bull were removed from the club's decision-making bodies or how the amount of sponsorship money paid to the club was reduced. Such details become particularly important if the concept of decisive influence plays a central role, because in this context the general public will not be able to access most of the relevant information via commercial registers. In contrast, this will not be the case with legal systems in England or Spain which employ a threshold of the shareholders' voting rights as a key criterion. Thus, if UEFA fails to provide such details (subject to confidentiality rules) in its decisions, its credibility might suffer.

Despite the fact that this post has identified certain flaws of the concept of decisive influence, I do not believe that a modification of the Current Rule should be a matter of urgency. As suggested above, a well-reasoned decision may foster UEFA's credibility and help reduce the legal uncertainty emanating from the concept of decisive influence. Bearing in mind the recent revitalization of multi-club ownership in European football, UEFA might soon get another opportunity to deliver such decision.

[1]   It should be noted that in addition to FC Red Bull Salzburg and RasenBallsport Leipzig, Red Bull also owns the U.S. club New York Red Bulls and the Brazilian club Red Bull Brasil.

[2]   It was often referred to as SV Austria Salzburg, a name that was given to the club at its foundation in 1933.

[3]   In fact, due to the rules prohibiting clubs to be named after their sponsors, the abbreviation 'RB' does not officially stand for Red Bull, but rather for RasenBallsport which can be roughly translated as 'lawn ball sports'.

[4]   UCL Regulations, Article 5.01(c).

[5]   Ibid. Article 5.02(a).

[6]   Ibid. Article 5.02(b).

[7]   As the Austrian club finished first in its domestic championship (whilst RB Leipzig finished second).

[8]   CFCB Adjudicatory Chamber AC-01/2017 RasenBallsport Leipzig GmbH and FC Red Bull Salzburg GmbH, Decision of 16 June 2017, para. 11.

[9]   Ibid. para. 41.

[10] Council Regulation (EC) No 139/2004 of 20 January 2004 on the control of concentrations between undertakings, Article 3(2). See also Commission Consolidated Jurisdictional Notice under Council Regulation (EC) No 139/2004 on the control of concentrations between undertakings.

[11] CFCB Adjudicatory Chamber decision (n 8) para. 40.

[12] Ibid. para. 50.

[13] Ibid. para. 51.        

[14] Ibid. para. 52.

[15] Ibid. para. 55.

[16] Ibid. para. 57.

[17] Ibid. para. 58.

[18] Rules of the Premier League to be found in the Premier League Handbook, Season 2017/18, Rule A.1.122.

[19] Ibid. Rule F.1.2. This provision in essence corresponds to Article 5.01(b) of the UCL Regulations.

[20] Rules of the Premier League, Rule F.1.3.

[21] Royal Decree No 1251/1999 on Sports Limited Liability Companies, Article 17(1) and (2). Professional football competitions at the state level include only La Liga and Segunda División A.

[22] See CFCB Adjudicatory Chamber decision (n 8) para. 41.

[23] Such examples could only be inferred from the changes made by RB Salzburg.