Asser International Sports Law Blog | Brexit and EU law: Beyond the Premier League (Part 2). By Marine Montejo

Brexit and EU law: Beyond the Premier League (Part 2). By Marine Montejo

25. July 2016 Oskar van Maren Blog, International Sports Law Commentaries (0)

Editor's note: Marine Montejo is a graduate from the College of Europe in Bruges and is currently an intern at the ASSER International Sports Law Centre.

Part 2. EU competition law and sports funding

The first analysed impact of Brexit on sport was the one regarding EU internal market rules and free movement. However, all sport areas that are of interest to the European Union will be impacted by the result of the future Brexit negotiations. This second part of the blog will focus on EU competition law and the media sector as well as direct funding opportunities keeping in mind that if the UK reaches for an EEA type agreement competition law and state aid rules will remain applicable as much as the funding programs.

A) EU competition law and the media sector

As for the internal market rules, EU competition law applies to sport as long as an economic activity appears to have an impact on the European market. In the field of sport this is particularly true for the media sector, a key source of economic revenue for professional sport.

EU competition law

It should be stated from the beginning that the UK, even completely outside of the EU, will not escape EU competition law (articles 101 and 102 TFEU). Indeed, if there is an economic activity within the European market EU law will continue to apply. The application of EU competition law leads to a convergence with national competition rules and most of the decisions relating to sport will probably remain enforceable through UK national law provisions unless there is an important change in their interpretation or a complete shift in competition law policy leading to a change of these rules.

The main impact for the UK regarding the applicability of EU competition law appears to be in the media sector. With regard to the collective selling of media rights, for the time being national provisions should maintain the system in force which is derived from the Commission’s decisional practice (Football Association Premier League for a British example). Collective selling of media rights is compatible with EU competition law if the selling procedure is organised in a transparent and non-discriminatory manner, the contractual exclusivity runs for no more than three years and the rights are sold in several packages. The “no-single buyer” clause that was first imposed upon the Premier League to avoid the risk of monopolisation given the specific structure of the British sport media market (and now also applied by the German competition authority for the Bundesliga rights) might be questioned. This clause, providing that all the rights should not be sold to a single broadcaster, combined with the possibilities offered by EU free movement and impressive marketing skills from the Football Association, has made the Premier League the most valuable football competition in the world (6.9 billion euros for 2016-2019). It is highly probable that the UK national competition authority will keep that clause and the obligations for all sport media rights unless there is a major shift in national competition law policy. Remaining or leaving, in any case EU competition law will have left an important imprint on the British sport media rights landscape.

New Event! Diversity at the Court of Arbitration for Sport: Time for a Changing of the Guard? - Zoom In Webinar - 14 October - 4pm

11. October 2021 Antoine Duval Blog, International Sports Law Events (0)

On Thursday 14 October 2021 from 16.00-17.30 CET, the Asser International Sports Law Centre, in collaboration with Dr Marjolaine Viret (University of Lausanne), will be launching the second season of the Zoom-In webinar series, with a first episode on Diversity at the Court of Arbitration for Sport: Time for a Changing of the Guard?

The Court of Arbitration for Sport (CAS) is a well-known mainstay of global sport. It has the exclusive competence over challenges against decisions taken by most international sports governing bodies and its jurisprudence covers a wide range of issues (doping, corruption, match-fixing, financial fair play, transfer or selection disputes) including disciplinary sanctions and governance disputes. In recent years, the CAS has rendered numerous awards which triggered world-wide public interest, such as in the Semenya v World Athletics case or the case between WADA and RUSADA resulting from the Russian doping scandal (we discussed both cases in previous Zoom-In discussion available here and here). In short, the CAS has tremendous influence on the shape of global sport and its governance.

However, as we will discuss during this webinar, recent work has shown that the arbitrators active at the CAS are hardly reflective of the diversity of people its decisions ultimately affect. This in our view warrants raising the question of the (urgent) need to change the (arbitral) guard at the CAS. To address these issues with us, we have invited two speakers who have played an instrumental role in putting numbers on impressions widely shared by those in contact with the CAS: Prof. Johan Lindholm (Umea University) and attorney-at-law Lisa Lazarus (Morgan Sports Law). Johan recently published a ground-breaking monograph on The Court of Arbitration for Sport and Its Jurisprudence in which he applies empirical and quantitative methods to analyse the work of the CAS. This included studying the sociological characteristics of CAS arbitrators. Lisa and her colleagues at Morgan Sports Law very recently released a blog post on Arbitrator Diversity at the Court of Arbitration for Sport, which reveals a stunning lack of diversity (based on their calculations, 4,5% of appointed CAS arbitrators are female and 0,2% are black) at the institution ruling over global sport.

Guest speakers:

Prof. Johan Lindholm (Umea University)
Lisa Lazarus (Morgan Sports Law)

Moderators:

Dr Antoine Duval (Asser Institute)
Dr Marjolaine Viret (University of Lausanne/PMA Avocats)

Zoom In webinar series

In December 2020, The Asser International Sports Law Centre in collaboration with Dr Marjolaine Viret launched a new series of zoom webinars on transnational sports law: Zoom In. You can watch the video recordings of our past Zoom In webinars on the Asser Institute’s Youtube Channel.

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Asser International Sports Law Blog | Summer Programme - Sports and Human Rights - 27-30 June - Join us!

Summer Programme - Sports and Human Rights - 27-30 June - Join us!

24. March 2023 Antoine Duval International Sports Law Events (0)

Join us for our unique training programme on ‘Sport and human rights’ jointly organised by the Centre for Sport and Human Rights and the Asser Institute and hosted by FIFPRO. After the success of the first edition in 2022 the programme returns, focusing on the link between the sport and human rights and zooming in on a number of challenges underlying this link, such as the human rights impacts of day-to-day sports, the normative framework and applicability of the UNGPs in the sporting context, the rights of athletes, gender and sports, remedies for sport-related human rights harms, and more.

If you wish to join, register HERE.

Tackling contemporary human rights challenges in sport
The programme brings together the latest in academic research with practical experiences from working in the field in an interactive package, fostering productive exchanges between the speakers and participants. Theoretical knowledge will be complemented by exposure to hands-on know-how and exercises.

Participants will have the opportunity to learn from experts from the Asser Institute, the Centre for Sport and Human Rights, and FIFPRO, as well as high-profile external speakers from both academia and practice.

Latest version of the full 4-day programme

What will you gain?

An extensive introduction to the emergence of the sport and human rights movement
A greater understanding of the normative framework for human rights standards in sport
A comprehensive overview of the latest developments in the interplay between gender and sports
Practical know-how to govern human rights in the context of sporting organisations
Practical know-how to address human rights risks in the context of day-to-day sports, including safeguarding
Practical know-how to access remedy in human rights disputes
The opportunity to engage in discussions and network with leading academics and professionals

Topics addressed in this summer programme include:

The emergence of the sport and human rights discussion/movement
The integration of human rights in the governance of sport
The protection of athletes’ rights
Gender and sports
Access to remedy for sport-related human rights harms

If you wish to join, register HERE.

Scholarships

The Centre for Sport and Human Rights is funding a scholarship for an outstanding master student, PhD candidate, or civil society representative from an underrepresented group, including those from the global South, to participate in the Asser Institute’s summer programme ‘Sport and Human Rights’. More information is available on their website.

Interested candidates should apply by 31 March 2023, 20:00 CET through the CSHR website.

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Asser International Sports Law Blog | The CAS Ad Hoc Division in 2014: Business as usual? – Part.1: The Jurisdiction quandary

The CAS Ad Hoc Division in 2014: Business as usual? – Part.1: The Jurisdiction quandary

29. October 2014 Antoine Duval (0)

The year is coming to an end and it has been a relatively busy one for the CAS Ad Hoc divisions. Indeed, the Ad Hoc division was, as usual now since the Olympic Games in Atlanta in 1996[1], settling “Olympic” disputes during the Winter Olympics in Sochi. However, it was also, and this is a novelty, present at the Asian Games 2014 in Incheon. Both divisions have had to deal with seven (published) cases in total (four in Sochi and three in Incheon). The early commentaries available on the web (here, here and there), have been relatively unmoved by this year’s case law. Was it then simply ‘business as usual’, or is there more to learn from the 2014 Ad Hoc awards? Two different dimensions of the 2014 decisions by the Ad Hoc Division seem relevant to elaborate on : the jurisdiction quandary (part. 1) and the selection drama (part. 2).

Part. 1: The Jurisdiction quandary: Too early to be judged!

The scope of jurisdiction of the Ad Hoc Division of CAS is provided for in article 1 of the ‘Arbitration Rules for the Olympic Games’ (the same is true for the Asian Games)[2]. However, legal uncertainties over this scope of jurisdiction remain a defining feature. Many earlier disputes in front of the Ad Hoc division have tackled this question, and this has been true again this year.[3]

It is not so much the scope rationae personae that might be problematic, although one case arose at the Asian games in which two former squash players were denied access to the Ad Hoc division on the basis of not being “participating athletes”.[4] Nor is it the rationae materiae that has been a real problem, as claimants tend to submit disputes, which are related to the Games. No, the problem child is usually the jurisdiction rationae temporis. Indeed, article 1 of the rules states that “any disputes covered by Rule 61 of the Olympic Charter, insofar as they arise during the Olympic Games or during a period of ten days preceding the Opening Ceremony of the Olympic Games” can be subjected to the jurisdiction of the Ad Hoc Division. So the key question is: When does a dispute “arise”?

In the Birkner case[5], the Ad Hoc Division in Sochi had to grapple extensively with the question of when the dispute arose as, during the hearing, the respondent, Comitato Olympico Argentino, “denied the existence of a basis of jurisdiction of the panel”. The case concerned a selection drama for the Sochi Games (see part 2); jurisdiction rationae personae and rationae materiae were unproblematic. The CAS did examine whether the local remedies were exhausted, and considered that “that there were no internal remedies to exhaust”.[6] The only barrier left for jurisdiction to be asserted was the ratione temporis. In short, “did the dispute arise in the required time frame?”[7]

This “vexing issue” [8] was touched upon repeatedly in past Ad Hoc division awards.[9] In the Birkner case, it had to be demonstrated that the dispute arose not earlier than the 28 January 2014, 10 days before the opening ceremony scheduled for the 7 February 2014. The panel first reaffirmed the fact that “the date when the dispute arose cannot, per se, be the date when the Request for Arbitration is filed” .[10] So, back to the key question, when did the dispute arise?

The award refers extensively to the Schuler case[11]. In its main holding on jurisdiction, the 2006 panel considered that “it would not be possible to say that a dispute had arisen until Ms Schuler had decided to appeal and had filed notice of her appeal”.[12] Nevertheless, the 2014 panel refused to consider the Schuler precedent to be applicable to the Birkner case for two reasons: the factual situation is different and the reasoning used in Schuler is fundamentally flawed.

On the factual side, contrary to the Schuler case, the panel finds that “[i]n the present case […] the explanation was not given on a date inside the required period, as it was either on 20 January 2014, which is the date of the letter of explanation, or on 22 January 2014, which is the date on which the Applicant says that she received that letter”.[13] Both of these dates being well before the 10 days period, the panel is of the opinion that it lacks jurisdiction. On the legal side, the panel is clearly not “convinced by the legal reasoning adopted in the Schuler case” .[14] In fact, it considers that “[s]uch conclusion could extend the jurisdiction of the ad hoc Division outside the precise and limited framework set by the Rules, which this Panel is required to respect and apply” [15]. The panel is of the opinion that “the date when a dispute arises is in general […] the date of the decision with which the Applicant disagrees” .[16] However, “[s]uch a date can arise later […] if […] the decision is not self-explanatory and requires some explanation in order for the parties to know with certainty that they are in disagreement”.[17]

This is a noteworthy consideration, which indicates a substantial reduction of the scope of jurisdiction of the CAS Ad Hoc Division. If the parties do not agree to the jurisdiction of CAS (in practice they often do not contest the jurisdiction[18]) it will render more difficult the referral of a dispute to the Ad Hoc Division. This understanding of the start of a dispute is contradicting the overall aim of the Ad Hoc Division, which is to deal swiftly with all disputes intimately linked to the Games. In this light, a more flexible interpretation of the jurisdiction rationae temporis, as suggested in the Schuler case, is preferable. Athletes are no legal experts; they (and sometimes their lawyers) need time to find their way through the jungle of sporting regulations and dispute resolution mechanisms potentially applicable. The crucial importance of the Olympic Games for an athlete’s career call for an interpretation of the start of the dispute that focuses on the intention to challenge the decision as highlighted in the Schuler award[19]. Moreover, any doubts concerning the starting date of the dispute should play in favour of the athlete, unless the time between the date of notification of the contentious decision and the decision to lodge a complaint in front of CAS is disproportionately (and abusively) long. The attack by the Birkner panel on the reasoning adopted in Schuler is no anodyne move; in the future it may threaten the access to justice of athletes and their ability to obtain a swift and fair decision, in a context where they most urgently need it.

[1] On the early days of the CAS Ad Hoc Division at the Olympics, the book by Gabrielle Kaufmann-Kohler is a must read : G. Kaufmann-Kohler, Arbitration at the Olympics, Kluwer Law, 2001.

[2] Article 1 of the Arbitration Rules for the OG stipulates that:

“The purpose of the present Rules is to provide, in the interests of the athletes and of sport, for the resolution by arbitration of any disputes covered by Rule 61 of the Olympic Charter, insofar as they arise during the Olympic Games or during a period of ten days preceding the Opening Ceremony of the Olympic Games.”

“In the case of a request for arbitration against a decision pronounced by the IOC, an NOC, an International Federation or an Organising Committee for the Olympic Games, the claimant must, before filing such request, have exhausted all the internal remedies available to him/her pursuant to the statutes or regulations of the sports body concerned, unless the time needed to exhaust the internal remedies would make the appeal to the CAS Ad Hoc Division ineffective.”

[3] CAS OG 14/03; CAS AG 14/01; CAS AG 14/02.

[4] See CAS AG 14/01, §2.5. See also CAS OG 12/03, §2.3.

[5] CAS OG 14/03

[6] CAS OG 14/03, §5.14

[7] CAS OG 14/03, §5.17-5-30

[8] CAS OG 14/03, §5.20

[9] Most notably in the Schuler case, CAS OG 06/002. For a general commentary see: I.S.LR. 2006 pp.50-51 and A. Rigozzi, ‘The decisions rendered by the CAS Ad Hoc Division at the Turin Winter Olympic Games 2006’, Journal of International Arbitration 23 (5): 453-466, 2006

[10] CAS OG 14/03, §5.21

[11] CAS OG 14/03, §5.24

[12] CAS OG 06/002, §14

[13] CAS OG 14/03, §5.25

[14] CAS OG 14/03, §5.25

[15] CAS OG 14/03, §5.27

[16] CAS OG 14/03, §5.28

[17] CAS OG 14/03, §5.28

[18] See for example CAS OG 14/01 §6.2 and CAS OG 14/02 §6.5

[19] In cases, in which the dispute overtly arose earlier than 10 days before the games such a restrictive interpretation could be tolerated. See for example: CAS OG 12/03, §2.3.23; CAS OG 12/02, §4.10; CAS OG 12/04, §5.2.

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Asser International Sports Law Blog | The EU State aid and Sport Saga: Hungary revisited? (Part 2)

The EU State aid and Sport Saga: Hungary revisited? (Part 2)

6. June 2016 Oskar van Maren Blog, International Sports Law Cases, International Sports Law Commentaries (0)

On 18 May 2016, the day the first part of this blog was published, the Commission said in response to the Hungarian MEP Péter Niedermüller’s question, that it had “not specifically monitored the tax relief (…) but would consider doing so. The Commission cannot prejudge the steps that it might take following such monitoring. However, the Commission thanks (Niedermüller) for drawing its attention to the report of Transparency International.”

With the actual implementation in Hungary appearing to deviate from the original objectives and conditions of the aid scheme, as discussed in part 1 of this blog, a possible monitoring exercise by the Commission of the Hungarian tax benefit scheme seems appropriate. The question remains, however, whether the Commission follows up on the intent of monitoring, or whether the intent should be regarded as empty words. This second part of the blog will outline the rules on reviewing and monitoring (existing) aid, both substantively and procedurally. It will determine, inter alia, whether the State aid rules impose an obligation upon the Commission to act and, if so, in what way.

In order to correctly decipher the potential consequences of Hungary’s behavior under EU State aid law, it is necessary to make a distinction between the part of the aid scheme declared compatible in the tax benefit scheme in the Hungarian sport sector decision, i.e. the donations for the sport infrastructures used by the professional sport organizations, and the donations used to cover personnel costs. Due to the fact that these two types of donation destinations were allowed based on two different exception procedures (the general exception found in Article 107(3)c) TFEU for the aid to sport infrastructure, and the General Block Exemption Regulation or the de minimis aid Regulation for the aid to cover personnel costs), the rules on reviewing and monitoring aid differ slightly. This blog will only focus on the review and monitoring rules of the tax benefit scheme in the Hungarian sport sector decision.

Reviewing and monitoring State aid schemes – a Commission obligation?

A decision to approve an aid scheme (also known as a “positive decision” under Article 9(3) of the Procedural Regulation 2015/1589), should not fully release the Commission from any obligations regarding ex post control of that scheme. As can be read from Article 108(1) TFEU, “(t)he Commission shall, in cooperation with Member States, keep under constant review all systems of aid existing in those States. It shall propose to the latter any appropriate measure required by the progressive development or by the functioning of the internal market.”

The Commission’s responsibilities appear straightforward. After declaring the Hungarian tax benefit scheme compatible with EU law, it is obliged to review the implementation and usage of the aid by the Member State and the beneficiary, or beneficiaries. The CJEU settled as far back as 1974 that the Commission’s obligation to review existing aid is binding and that the Member States in question the obligation to cooperate with the Commission.[1] In fact, as Advocate General Lenz stated in his opinion in the Namur-Les Assurances du Crédit case, the Commission’s task to constantly review aid is even more necessary for aid schemes, like the Hungarian tax benefit scheme, as compared to individually authorized aid measures.[2] Pursuant to Article 108(1) TFEU and Article 21 of the Procedural Regulation, where the Commission considers that an existing aid scheme is not, or is no longer, compatible with the internal market instead of immediately launching a formal investigation, the Commission must issue a recommendation to the Member State concerned. The recommendation may propose, in particular:

Substantive amendment of the aid scheme;
Introduction of procedural requirements; or
Abolition of the aid scheme.[3]

It is important to note that in accordance with Article 288 TFEU, fifth sentence, recommendations have no binding force. Therefore, the proposed measure itself is not binding for the Member State. Only where the Member State accepts the proposed measure, shall it be bound by its acceptance to implement the appropriate measure.[4] However, if the Member State refuses to accept and implement the recommendations, the Commission could launch a formal investigation in accordance with Article 108(2).[5] Article 108 (1) TFEU and Article 21 of the Procedural Regulation also require the Member States to cooperate with the Commission for the purpose of reviewing aid schemes. This cooperation is further specified in Article 26 of the Procedural Regulation, which obliges Member States to submit annual reports on existing aid schemes to the Commission.[6] The reports allow the Commission to monitor the compliance with the positive decision by the Member State. As was already discussed in part 1 of this blog, Hungary too is required to submit a yearly monitoring report containing information on the total aid amount allocated, the sport infrastructure projects funded, their beneficiaries, etc.[7] A failure by Hungary to submit an annual report, would allow the Commission to propose an appropriate measure as listed above.[8] Whether Hungary actually submits annual reports to the Commission is currently unclear.

Monitoring the tax benefit scheme in the Hungarian sport sector – not as straightforward as it appears

The Commission has repeatedly expressed its ambition for more and better monitoring of State aid schemes. This ambition follows from its primary objective to increase Commission enforcement focus on cases with the biggest impact on the internal market, as can be read from, inter alia, the State Aid Modernisation (SAM) Communication of 2012. Better targeted State aid control means an “increased responsibility of Member States in designing and implementing aid measures” for cases of a more local nature and with little effect on trade, as well as “enhanced ex post monitoring by the Commission to ensure adequate compliance” with the State aid rules.[9] In 2006, the Commission introduced a regular, ex post, monitoring exercise of existing aid schemes. The monitoring exercise gradually increased from 20 different schemes in 2006, to 75 schemes in 2014, covering all Member States, all main types of aid approved as well as block-exempted schemes.[10] The monitoring exercises conducted in 2014 led to the openings of four formal investigations.[11] The willingness to increase monitoring seems logical when taking into account EU case law, which imposes, in practice, an obligation for the Commission to review previously approved aid schemes. Yet, only a very small amount of existing aid schemes is monitored, nor is it realistically possible to do monitor all the schemes. As can be read in the recently published DG Competition Management Plan 2016, over the last 10 years the Commission declared over 3000 aid schemes or measures compatible with EU law after a the preliminary phase (“decisions not to raise objections”) alone.[12] This amount does not take into account positive decisions or block exempted aid schemes and measures, all of which should, strictly speaking, be monitored. Exact numbers on the amount of existing aid schemes currently running throughout the EU are not available, but one could safely say that the overwhelming majority of existing aid schemes are not monitored. Unless the State aid department of the Commission dramatically increases its resources, both in terms of finances and staff, monitoring all existing State aid schemes will remain utopic.

The “specificity” of State aid to the professional sport sector and why extra monitoring in the sector should be considered

The Hungarian tax benefit scheme is not functioning in accordance with its original objectives: many of the sport infrastructure projects funded with public money do not seem strictly necessary and selected professional football clubs benefitted disproportionately. Under these circumstances, a monitoring exercise conducted by the Commission could be needed. If a monitoring exercise confirms disproportionate spreading of subsidies, a consequent set of appropriate measures taken by Hungary could bring the scheme in line with its original objectives. However, given that the majority of schemes are not monitored, there is a very big chance that the Hungarian tax benefit scheme is not one of the “lucky ones” selected. It is also unclear whether the Commission’s answer to the Parliamentary question of 18 May in any way increases that probability.

The State aid complaint procedure as an alternative

Another way to force the Commission to look into the aid scheme, not yet discussed above, is through a State aid complaint procedure. Although the tax benefit scheme was already approved by the Commission in 2011, this should not rule out the possibility of an interested party submitting a complaint to inform the Commission of any alleged unlawful aid.[13] Pursuant to Article 12(1), the Commission is obliged to examine without undue delay a complaint by an interested party, thereby automatically triggering the preliminary State aid investigation of Article 108(3) TFEU. Although ‘unlawful aid’ refers to new aid put into effect in contravention of Article 108(3) TFEU[14], and not existing aid, such as aid schemes authorized by the Commission[15], ‘new aid’ also refers to existing aid that has been altered by the Member State.[16] In accordance with the Commission’s State Aid Manual of Procedures, for an aid scheme to be altered, the complainant would need to demonstrate that a change has taken place that affects “the evaluation of the compatibility of the aid with the common market”.[17] In addition to this, the complaint would need to include, inter alia, information on the (functioning of) the scheme, the amount of aid granted, and why the scheme is no longer compatible under Article 107(3).[18] A further highly important criterion is for the interested party to demonstrate to the Commission that the complainant is directly affected in its “competitive position” by the aid scheme.[19] This criterion empowers the Commission to separate formal complaints from the complaints that are “not motivated by genuine competition concerns”, thereby reducing considerably its workload of having to launch a (preliminary) investigation based on every single complaint it receives.[20] Complaints submitted by complainants, who the Commission does not consider to be interested parties, will be regarded as “general market information”[21] and do not oblige the Commission to investigate.

The “specificity” of State aid to professional sport – no complaints by other clubs

The “interested party” criterion was only added after the reform of the Procedural Regulation in 2013[22], and has affected the professional sport sector considerably. The two years prior saw great activity by the Commission in the sector, including the opening of four formal investigations into alleged State aid to professional football clubs like Real Madrid and Valencia CF.[23] The investigations into alleged aid granted to Real Madrid and Valencia CF were not launched after the submission of a complaint by an interested party, but after “the attention of the Commission was drawn by press reports and information sent by citizens in 2012-2013”.[24] The end of formal investigations into alleged aid granted to professional sport clubs coincided with the introduction of the “interested party” criterion: since citizens are not considered interested parties, the Commission does not have an obligation anymore to investigate complaints, or any form of information, submitted by them. At this moment, only complaints submitted by interested parties, i.e. a party directly affected in its competitive position, have the potential of triggering fresh State aid investigations in the professional sport sector.[25]

Which persons or undertakings fulfill the “interested party” criterion? The answer to this question requires a case by case analysis and depends on the aid measure or scheme chosen by the public authorities.[26] Nonetheless, where aid is granted to a professional sport club, the clearest example of an interested party would be another professional sport club. Getting professional sport clubs to submit State aid complaints is, however, easier said than done. Contrary to other economic sectors where competitors would complain if they feel that they are directly affected in their competitive position, no professional sport club has ever submitted a State aid complaint, nor is it likely to happen anytime soon. As is confirmed by Dutch professional football club FC Groningen’s director Hans Nijland in an article published on 18 May by the Dutch magazine De Groene Amterdammer , “if (another football club) manages to sign a deal with its municipality, I will not complain. In fact, I would say congratulations, well done”.[27] The same mentality probably prevails in Hungary, making it very unlikely that a Hungarian professional football club, or any other professional sport club, decides to submit a complaint alleging unlawful aid to, say, Puskás Akadémia FC due to the disproportionate distribution of subsidies under the tax benefit scheme.

Why extra monitoring in the sport sector should be considered

The advantages of EU State aid control include efficient government spending in the economy as well as better accountability and transparency of aid measures.[28] Nonetheless, with the chances of the Commission monitoring existing aid in professional sport, such as the Hungarian tax benefit scheme, being very slim, and given the unlikeliness of a submission of a complaint by a competing professional sport club, how useful are the State aid rules to achieve better accountability and transparency in (professional) sport? Local governments will continue spending large amounts of public money on projects that distort competition and are contrary to the general public interest, without a meaningful risk of being called back. Furthermore, as long as the Commission does not prioritize State aid enforcement to the professional sport sector, similar to how it enforces the State aid rules regarding fiscal aid to multinationals[29], it is also unlikely that it will investigate ex officio.

From the “efficient use of Commission resources” viewpoint, it is, in a way, understandable that the Commission has decided not to prioritize State aid to professional sport. They are, after all, not the most distortive State aid cases. However, this lack of prioritization is not being compensated with the submission of complaints by interested parties, meaning that public authorities have less to fear from State aid control in the professional sport factor, as compared to other market sectors.

To prevent a complete carte blanche for the public authorities, I would argue that the Commission should impose upon itself stricter conditions as regards monitoring State aid measures and scheme to the benefit of professional sport clubs. The current monitoring system, where the chance of being monitored is smaller than not being monitored, is inefficient in a sector where competitors do not serve as watchdogs. Only by radically increasing the monitoring chance in the professional sport sector can better accountability and transparency of aid measures be achieved.

[1] Case 173/73, Italy v Commission, [1974] ECLI:EU:C:1974:71, para 24.

[2] Opinion of Advocate General Lenz in Case C-44/93, Namur-Les Assurances du Crédit SA v Office Nationale du Ducroire , [1994] ECLI:EU:C:1994:262, para 86.

[3] Procedural Regulation 2015/1589, Article 22. Contrary to the decision options of formal investigations, a decision to order a recovery of the aid from the beneficiary or beneficiaries, as listed in Procedural Regulation, Articles 9(5) and 16, is not an option for the “review procedure”.

[4] Ibid., Article 23(1).

[5] The Enterprise Capital Funds (ECF) decision is a good example of a formal investigation based on ex post review and monitoring. Following a “selected” monitoring exercise in 2011, it was discovered that the UK had failed to take the appropriate measures to bring an aid scheme in line with the Commission Guidelines on Risk Capital , even though it had promised to do so. This led to the Commission opening a formal investigation in November 2011.

[6] Pursuant to Procedural Regulation, Article 26(1), the obligation to submit annual reports applies to decisions “to which no specific reporting obligations have been imposed in a conditional decision”. Under a conditional decision, the Commission attaches to a decision conditions subject to which aid may be considered compatible with the internal market. The tax benefit scheme in the Hungarian sport sector decision has no specific conditions attached to it, apart from the usual obligation for the Member State concerned to submit an annual report to the Commission.

[7] Commission Decision of 9 November 2011, SA.31722 – Hungary - Supporting the Hungarian sport sector via tax benefit scheme , para 57.

[8] Procedural Regulation 2015/1589, Article 26(2).

[9] EU State Aid Modernisation Communication of 8 May 2012 , para 19.

[10] Commission Staff Working Document of 4 June 2015, “ Report from the Commission to the European Parliament, the Council, the European Economic and Social Committee and the Committee of the Regions on Competition Policy 2014 ”, page 10.

[11] Ibid. One of the investigations involved the Enterprise Capital Funds scheme – Supra n5.

[12] DG Competition document of 18 March 2016 REF. Ares(2016)1370536 “ Management Plan 2016 ”, page 15.

[13] Procedural Regulation 2015/1589, Article 24(2).

[14] Ibid., Article 1(f).

[15] Ibid., Article 1(b)(ii).

[16] Ibid., Article 1(c).

[17] Internal DG Competition working documents on procedures for the application of Articles 107 and 108 TFEU of 10 July 2013, State Aid Manual of Procedures , Section 5, para 1.2.1.

[18] A complaint that does not comply with the compulsory complaint form, or if the complainant does not provide sufficient grounds to show the existence of unlawful aid can be withdrawn by the Commission. See Procedural Regulation 2015/1589, Article 24(2).

[19] Form for the Submission of Complaints Concerning Alleged Unlawful State Aid or Misuse of Aid , point 3.

[20] Draft Report by the European Parliament of 19 March 2013 on the proposal for a Council Regulation amending Regulation (EC) No 659/1999 laying down detailed rules for the application of Article 93 of the EC Treaty (COM (2012) 725 final) , page 17.

[21] Supra., No 19.

[22] Council Regulation (EU) No 734/2013 of 22 July 20-13 amending Regulation (EC) No 659/1999 laying down detailed rules for the application of Article 93 of the EC Treaty [2013] OJ L204/14.

[23] An explanation on why the public financing of sports infrastructure and professional sports clubs only started to attract State aid scrutiny in recent years can be read in: Ben Van Rompuy and Oskar van Maren, “EU Control of State Aid to Professional Sport: Why Now?” In: “The Legacy of Bosman. Revisiting the relationship between EU law and sport”, T.M.C. Asser Press, 2016.

[24] See, for example Commission decision of 18 December 2013, SA.36387 Spain – Alleged aid in favour of three Valencia football clubs, para 3. The other formal investigations to professional football clubs (i.e. Real Madrid , five Dutch football clubs and four Spanish football clubs ), were also launched after the Commission received information through citizens and/or the press.

[25] Or the Commission decides to open an investigation ex officio pursuant to Procedural Regulation 2015/1589, Article 12(1). However, this is very unlikely, given the lack of priority given by the Commission to sport.

[26] For example, in the case of the Hungarian tax benefit scheme, clubs or associations not active in the sport sector (e.g. theatre clubs, art clubs, etc.), could potentially argue that they have been placed in a disadvantageous position, since they cannot receive donations under the scheme. An aid measure provided in the form of advantageous land transactions, such as the Real Madrid case, could directly affect any undertaking interested in purchasing the same land, or any other plot of land against other market conditions.

[27] Hester den Boer and Bram Logger, “ Een spits van belastinggeld; Onderzoek – Lokale overheden blijven profvoetbal massaal steunen ”, De Groene Amsterdammer, 18 May 2016, page 5.

[28] See for example Oskar van Maren, “EU State Aid Law and Professional Football: A threat or a Blessing?” , European State Aid Law Quarterly, Volume 15 1/2016, pages 31-46.

[29] High profile formal State aid investigations into alleged aid granted by means of selective tax agreements between Member State governments and multinationals like Starbucks, Fiat, Amazon or Apple, have launched in the last few years.

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Asser International Sports Law Blog | The EU State aid and sport saga: The Real Madrid Decision (part 2)

The EU State aid and sport saga: The Real Madrid Decision (part 2)

1. December 2016 Oskar van Maren Blog, International Sports Law Cases, International Sports Law Commentaries (1)

This is the second and final part of the ‘Real Madrid Saga’. Where the first part outlined the background of the case and the role played by the Spanish national courts, the second part focuses on the EU Commission’s recovery decision of 4 July 2016 and dissects the arguments advanced by the Commission to reach it. As will be shown, the most important question the Commission had to answer was whether the settlement agreement of 29 July 2011 between the Council of Madrid and Real Madrid constituted a selective economic advantage for Real Madrid in the sense of Article 107(1) TFEU.[1] Before delving into that analysis, the blog will commence with the other pending question, namely whether the Commission also scrutinized the legality of the operation Bernabeú-Opañel under EU State aid law. By way of reminder, this operation consisted of Real Madrid receiving from the municipality the land adjacent to the Bernabéu stadium, while transferring in return €6.6 million, as well as plots of land in other areas of the city.

The Commission’s ‘pragmatic’ solution regarding the Operation Bernabéu-Opañel

As was explained in part 1 of this blog, during the formal investigation period (i.e. from 18 December 2013 until 4 July 2016), the operation Bernabéu-Opañel (referred to by the Commission as the ‘2011 urban development agreement’) was firstly suspended by the Madrid High Court (31 July 2014) and later completely annulled (2 February 2015) by that same Court. It is worth reiterating that the Court believed there to be a sufficient link between the 2011 settlement agreement and the operation Bernabéu-Opañel in order to examine the agreements together.[2]

The Commission, however, was actually surprisingly brief on this matter. As can be read from paragraphs 79 and 80 from the decision, “(a)s a result of (the judgment of 2 February 2015), the 2011 urban development agreement has been cancelled between the parties. Consequently, that agreement will no longer be implemented so that the Commission assessment of the 2011 urban development agreement has become without object. The present Decision therefore only examines the 2011 settlement agreement under State aid rules”.[3]

From an EU State aid law perspective, declaring the operation Bernabéu-Opañel “without object” makes sense. With the agreement annulled, there has been no transfer of resources from the State to Real Madrid of any sorts, nor could Real Madrid have obtained an economic advantage from an annulled agreement. Therefore, removing all the problematic aspects of the agreement from a State aid perspective. Yet, it does remain slightly ironic that that the ‘standstill obligation’ was applied to an agreement that was later on never analysed by the Commission. True, the subsequent annulment (based solely on Spanish administrative law) made Commission scrutiny redundant, but one does wonder what the Commission would have decided had the Madrid Court not annulled the operation.

The 2011 settlement agreement under Article 107(1) TFEU

By way of reminder, in the opening decision, the Commission primarily doubted whether:

1) It was impossible for the Council of Madrid to transfer the Las Tablas property to Real Madrid;

2) This legal impossibility automatically led to an obligation for the Council of Madrid to compensate Real Madrid;

3) A market value of the Las Tablas plot of land has been sought;

4) And whether the value of the properties which were transferred to Real Madrid by the 2011 settlement agreement were market conform.[4]

In reaction to the opening decision Spain argued that transferring the plot in Las Tablas was illegal based on the local urban law 9/2001 of 2001, this interpretation was later confirmed by the Spanish High Court in 2004. Yet, this was already the case in 1998 when the Madrid Council agreed to transfer the land to Real Madrid.[5] Given that Real Madrid had legitimate expectations that it was the owner of the land, it has suffered damages as a consequence of the transfer’s invalidity. As a consequence, Real Madrid needed to be compensated by an amount equal to the market value of Las Tablas in 2011, namely €22.693.054,44. Since this sum was calculated on the basis of an objective model set by the Ministry of Economy and Industry[6], Spain considered that it matched the market value and could not constitute State aid.

The economic advantage criterion according to the market economy operator principle

The Commission’s State aid assessment essentially revolved around the question whether the 2011 settlement agreement between the Council of Madrid and Real Madrid resulted in an economic advantage to the benefit of Real Madrid.[7] As is standard Commission practice[8], “to determine whether a particular transaction carried out by a public authority has been carried out in line with normal market conditions, it is necessary to compare the behaviour of that public authority with that of a similarly situated hypothetical “market economic operator” operating under normal market conditions. If the “market economy operator” would have entered into that transaction under similar terms, then the presence of an advantage may be excluded as regards that transaction”.[9] Referring to EU case law[10], the Commission argued that a prudent market operator would carry out his own ex ante assessment on the basis of sound economic and legal evaluations, when entering such transactions. Public authorities cannot claim that evaluations made after the transaction, based on a retrospective finding that it was actually economically rational, like the Madrid Council did in this case, is the course of action that a prudent market operator would take under similar circumstances.[11]

In continuation, the Commission indicated the two criteria it used in order to determine whether the amount of compensation offered to Real Madrid was in line market conditions:

1) The probability that the Madrid Council would be held liable for its inability to perform its contractual obligations;

2) And the maximum extent of its financial exposure resulting from finding such a liability.[12]

Though these criteria are clearly cumulative, it should be noted that the Commission did not support the criteria with a reference to case law, its own decisional practice or documents of (soft) law. Be that as it may, based primarily on these criteria the Commission concluded that a market economy operator in a similar situation to the Madrid Council would not have entered into the 2011 settlement agreement.

As regards the first criteria, the Commission argued that the Madrid Council should have sought legal advice so as to establish the likelihood that it was indeed liable for not performing its contractual obligations. Without legal advice, the Commission found it hard to believe that a prudent market operator would have assumed full legal liability, especially considering “the legal uncertainties surrounding the potential impossibility to perform (the land transaction), the legal consequences of that potential impossibility, and the Madrid Council’s ability to remedy that legal impossibility through other means”.[13] The Commission seems definitely correct in questioning the chain of events that eventually led to the compensation of more than €20 million. Even though, as Spain now claims[14], it was already legally impossible to transfer the land in 1998, why did the Madrid Council sign this agreement in the first place? After the introduction of local urban law 9/2001, shouldn’t the parties have been aware of the legal impossibility at that moment, or in any case after the 2004 judgment of the Madrid High Court? Consequently, why did the Council wait until 2011 before compensating Real Madrid? In paragraphs 103 and 104, the Commission also drew an interesting comparison with the operation Bernabéu-Opañel. Although this latter operation was declared void by a Spanish Court for not being in line with the general interest, it simultaneously shows that reclassifying a terrain from public to private (sport) use is not entirely legally impossible. In other words, by analogy, the plot in Las Tablas could have been reclassified for private use (provided the reclassification served the general interest) and be legally transferred to Real Madrid.

With regard to the second criteria, i.e. the maximum extent of the Madrid Council’s financial exposure resulting from finding such a liability, the Commission firstly argued that the different valuations of 1998 and 2011 of the land in Las Tablas were based on the mistaken assumption that this land could have been transferred in 2011, which, in hindsight appeared to be legally impossible. “Assuming the Madrid Council could not be held liable for that legal impossibility, for which it never solicited legal advice, it is at least arguable that the market value of the plot in its relationship with Real Madrid would be zero, since the land in question cannot be transferred”.[15] On the other hand, and assuming the Madrid Council is liable and Real Madrid had a right to a compensation, this amount should have been way less than €22 million as a Commission-assigned study concluded. Taking into account the Commission’s consideration that the correct parameter for the valuation of the concerned plot is the long-term exploitation of the land for sport use, the study arrived at a valuation in 2011 of €4.275 million.[16]

For all the above reasons, the Commission established that the Madrid Council had not acted as a prudent market operator. It had not sought legal advice before entering the 2011 settlement agreement, and the subsequent compensation granted to Real Madrid too high. In conclusion, by means of the 2011 settlement agreement, a selective economic advantage was granted to Real Madrid and the State aid criteria of Article 107(1) TFEU were fulfilled. As a result, the amount of aid that Spain was required to recover from the football club amounted to €18.418.054,44 (€22.693.054,44 - €4.275.000) plus interests.[17]

The aftermath

On 2 September 2016, the municipality of Madrid officially ordered Real Madrid to repay €20.3 million, an obligation complied with by the club in early November. Nonetheless, the Real Madrid ‘saga’ has not come to an end. In fact, now that Real Madrid’s appeal is registered by the CJEU, it has become clear that it could take several more years until the case is finally closed. The pending questions are; what are the grounds of Real Madrid’s appeal and could the appeal be successful?

As a preliminary remark, neither Spain nor Real Madrid have claimed that the 2011 settlement agreement falls, or could fall, under one of the exceptions of Article 107(3) TFEU. In principle, this does not prevent Real Madrid from advancing a compatibility plea in front of the General Court, even though it did not raise the argument during the formal investigation.[18] Nonetheless, given the Commission’s wide discretion in applying the exceptions of Article 107(3)[19], the review of the legality of its decision is restricted to determining whether the Commission committed a manifest error in its assessment of the facts or misused its powers.[20] Moreover, as the Commission indicates in paragraph 135 of the decision, the aid granted to Real Madrid is considered as operating aid.[21] In other words, the aid releases an undertaking from costs which it would normally have to bear in its day to day activities.[22] Both the Commission and the CJEU have been very reluctant in permitting operating aid since it rarely facilitates the development of certain economic activities without adversely affecting trading conditions.[23]

In a press-release following the Commission’s announcement of its recovery decision, Real Madrid inter alia argued that the valuation method used in the 2011 settlement agreement is the “only objective method, as it is based in the cadastral value, legally obliging for all Spanish City Councils, and therefore is applied in all transaction between City Councils and third parties whether they are public or private”.[24] The Commission’s final decision takes note of the criticism expressed by Real Madrid regarding the Commission-assigned valuation study, especially concerning the (in its eyes erroneous) valuation method used for the study.[25] Though the Commission rebutted Real Madrid’s criticism[26], it will be up to the General Court of the EU (and potentially later the Court of Justice) to decide whether the Madrid Council used the correct valuation method when determining the 2011 value of las Tablas. This will not be completely new territory for the General Court, given the rich jurisprudence available on valuation methods.[27] As regards the standard of review applied by the General Court, Conor Quigley argues that “where the Commission is found by the Court to have committed a sufficient error of assessment, the decision will be annulled”.[28] It is settled EU case law, that the valuation method must be based on the available objective, verifiable and reliable data, which should be sufficiently detailed and should reflect the economic situation at the time at which the transaction was decided, taking into account the level of risk and future expectations.[29] The General Court remains, however, entitled to fully review and assess the valuation methods presented by the Commission and the interested parties.[30]

The Real Madrid case is too complex and intertwined to draw definitive conclusions on the possible outcome of the appeal. Nonetheless, the thorough State aid assessment conducted by the Commission in its decision should not be underestimated. This will be a tough “legal match” on an entirely new turf for Real Madrid.

[1] By way of reminder, Article 107(1) TFEU reads: “Save as otherwise provided in the Treaties, any aid granted by a Member State or through State resources in any form whatsoever which distorts or threatens to distort competition by favouring certain undertakings or the production of certain goods shall, in so far as it affects trade between Member States, be incompatible with the internal market”.

[2] See Oskar van Maren, “The EU State aid and sport saga: The Real Madrid Decision (part 1)”, Asser International Sports Law Blog, 15 November 2016.

[3] Commission decision SA.33753 of 4 July 2016 on the State aid implemented by Spain for Real Madrid CF, paras. 79 and 80.

[4] Commission decision SA.33753 of 18 December 2013, State aid– Spain Real Madrid CF, paras. 41-43.

[5] Interestingly enough, Spain’s comments contradict Real Madrid’s comments, according to which, as can be read in paragraph 46 of the decision, Spanish law did allow Las Tablas to be reclassified for private use in 1998 and beyond until a specific law that prohibits that was introduced in 2001.

[6] Commission decision SA.33753 of 4 July 2016 on the State aid implemented by Spain for Real Madrid CF, paras. 29-36.

[7] Since it was clear State resources were transferred, that the measure was selective and that it at least had the potential of affecting intra-Union trade, the other criteria of Article 107(1) TFEU were only briefly discussed.

[9] Commission decision SA.33753 of 18 December 2013, State aid– Spain Real Madrid CF, para. 88.

[10] Case C-124/10 P Commission v. EDF ECLI:EU:C:2012:318, paras. 84, 85 and 105.

[11] Commission decision SA.33753 of 18 December 2013, State aid– Spain Real Madrid CF, para. 89.

[12] Ibid, para. 92.

[13] Ibid, para. 94.

[14] Ibid, para. 29.

[15] Ibid, para. 108.

[16] Ibid, paras. 111-112.

[17] Ibid, paras. 139-142.

[18] See for example T-110/97 Kneissl Dachstein v Commission ECLI:EU:T:1999:244, para. 102.

[19]Case T-304/08 Smurfit Kappa Group v Commission ECLI:EU:T:2012:351, para. 90.

[20] Conor Quigley, “European State Aid Law and Policy”, Hart Publishing, 3^rd edition (2015), pages 738-739. See also for example T-20/03 Kahla/Thüringen Porzellan v Commission, ECLI:EU:T:2008:395, para. 115.

[21] Commission decision SA.33753 of 18 December 2013, State aid– Spain Real Madrid CF, para. 135.

[22] See for example Case C-172/03 Heiser ECLI:EU:C:2005:130, para. 55.

[23] Quigley, page 276.

[24] Real Madrid further found it surprising that the Commission used a valuation made by an architect’s office in Barcelona to dictate their decision. Though many will find this comment by Real Madrid rather amusing, it once again shows that the rivalry between the two clubs (and cities) far exceeds the performances on a football field.

[25] Commission decision SA.33753 of 18 December 2013, State aid– Spain Real Madrid CF, para. 89.

[26] Ibid, paras. 119-128.

[27] See for example T-366/00 Scott v Commission ECLI:EU:T:2007:99; and C-239/09 Seydaland Vereinigte Agrarbetriebe ECLI:EU:C:2010:778.

[28] Quigley, page 737. Based on the case law of the Court, it is not entirely clear whether a “sufficient error of assessment” by the Commission is enough for the Court to annul the decision.

[29] T-366/00 Scott v Commission ECLI:EU:T:2007:99, para. 158. See also Commission Notice C 262/1 of 19 July 2016 on the notion of State aid as referred to in Article 107(1) of the Treaty on the Functioning of the European Union, para. 101.

[30] Case T-274/01 Valmont v Commission ECLI:EU:T:2004:266.

Comments (1) -

Florentino Perez
2/11/2017 9:19:30 AM |

According to the ecological movement (EeA), the advantage for Real in the transfer of the plots in the Opanel district in exchange for the super prime area in front of the Bernabeu Stadium was approx. €60 million which is not unreasonable considering the actual market prices in both areas. That was the lion's share of the aid. Add this to the three years of delay in the stadium redevelopment (no IPIC naming rights at €20-25 million a year and no increase in the match day revenue) and you will see the that the Saga has been ruinous for Real that has been overtaken in the meantime by United and Barca in the revenue league.

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Asser International Sports Law Blog | Football Intermediaries: Would a European centralized licensing system be a sustainable solution? - By Panagiotis Roumeliotis

Football Intermediaries: Would a European centralized licensing system be a sustainable solution? - By Panagiotis Roumeliotis

24. September 2018 Antoine Duval Blog, International Sports Law Commentaries, International Sports Law Publications (0)

Editor's note: Panagiotis Roumeliotis holds an LL.B. degree from National and Kapodistrian University of Athens, Greece and an LL.M. degree in European and International Tax Law from University of Luxembourg. He is qualified lawyer in Greece and is presently working as tax advisor with KPMG Luxembourg while pursuing, concomitantly, an LL.M. in International Sports Law at Sheffield Hallam University, England. His interest lies in the realm of tax and sports law. He may be contacted by e-mail at ‘p.roumeliotis@hotmail.com’.

Introduction

The landmark Bosman Ruling triggered the Europeanization of the labour market for football players by banning nationality quotas. In turn, in conjunction with the boom in TV revenues, this led to a flourishing transfer market in which players’ agents or intermediaries play a pivotal role, despite having a controversial reputation.

As a preliminary remark, it is important to touch upon the fiduciary duty of sports agents towards their clients. The principal-agent relationship implies that the former employs the agent so as to secure the best employment and/or commercial opportunities. Conversely, the latter is expected to act in the interest of the player as their relationship should be predicated on trust and confidence, as much was made clear in the English Court of Appeal case of Imageview Management Ltd v. Kelvin Jack. Notably, agents are bound to exercise the utmost degree of good faith, honesty and loyalty towards the players.[1]

At the core of this blog lies a comparative case study of the implementation of the FIFA Regulations on working with intermediaries (hereinafter “FIFA RWI”) in eight European FAs covering most of the transfers during the mercato. I will then critically analyze the issues raised by the implementation of the RWI and, as a conclusion, offer some recommendations.

FIFA RWI

In 2015, FIFA sought a new reform of football agents’ activity and adopted regulations on dealing with intermediaries[2] that are defined as “a natural or legal person who, for a fee or free of charge, represents players and/or clubs in negotiations with a view to concluding an employment contract or represents clubs in negotiations with a view to concluding a transfer agreement”.[3]

As solemnly illustrated in the Preamble, their purported aim is to bolster high ethical standards for the relations between clubs, players and third parties as well as enable proper control and transparency as regards player transfers.[4] In a nutshell, FIFA devolved its regulatory powers to the national federations whereas it will just monitor the regulations’ proper implementation.[5]

Case studies of the national implementation of the RWI in eight countries

The concrete impact of the new RWI can be duly chartered through an examination of European FAs’ implementation (i.e. Belgium, England, France, Germany, Italy, Netherlands, Portugal, and Spain) as Europe possesses by far the biggest transfer market globally.

Registration

The registration process is a conditio sine qua non for agents. Based on a literal interpretation of the RWI, agents’ registration should occur on a transactional basis[6] and it is conferred upon clubs and players to provide to the respective FA the intermediary declaration and representation contract.[7] As FAs are empowered to go beyond the minimum requirements enshrined in FIFA’s RWI[8] in some instances they have implemented different requirements.

Burdensome character

For purposes of tracking and tracing their activity, agents should, subject to signing and filing the so-called “intermediary declaration”, be registered with the FA where they exercise their profession. Ergo, the plethora of administrative rules simultaneously applied constitute glaring obstacles, as they allegedly impede the provision of services on behalf of agents[9] and, on top of that, the enhanced amount of registration fees[10] is burdensome. The net result seems to be that a “fragmented and multi-tiered system”[11] does not seem compatible with EU law. It is more likely than not that by curtailing the development of agents’ business, EU law (i.e. restraint on competition, free movement of services) is infringed.

Lack of qualification assessment

Apart from France[12], where candidates must sit a written examination and Spain[13], where a personal interview with the respective FA takes place, in principle, such assessments are not considered.

The self-certification of impeccable reputation does not guarantee the quality of the services rendered by agents and the possession of the requisite skills thereto. In fact, the EU Sectoral Social Dialogue Committee for Professional Football confirmed a decreased quality of said services. The obligation to undertake a serious examination should, a fortiori, be taken seriously into account and put into practice as it will offer guarantees of objectivity and transparency.

Of course one could contradict that agents derive their value from their extensive network of contacts and market knowledge;[14] instead of their education or license. Nevertheless, qualitative criteria need to be set as a condition for eventual registration, as players should only have the option to gravitate towards agents that can deploy them quality services. This is further fortified by the fact that football has become a sophisticated business, whereby complex contracts plausibly require qualified assistance so as to achieve a better protection of players’ rights.[15]

Remuneration

In theory, agents should be entitled to receive remuneration so long as they have brought about the employment contract/transfer agreement for which they have been engaged. The mere introduction of the parties to a contract, without evidence of contribution to said conclusion, is not sufficient[16] as the entitlement to commission crystalizes upon the provision of services.

Reality bears witness to the fact that the recommended 3% benchmark cap inserted in the FIFA RWI[17], albeit being the apple of discord in recent discussions, has not been interpreted by FAs as a “must”. Only 4/8[18] FAs have transposed such recommendation in their domestic RWI while the others[19] have ignored it.

A glance at current numbers proves that, in spite of the recommended cap, agents’ fees have swelled; as from 2013, UEFA clubs have spent 97.2% (i.e. USD 1.54 billion) of the commissions pocketed by intermediaries globally. Going forward, it is indicative that as per the UEFA Report for the FY 2016, the average commission rate amounted to 13% in Belgium, England, Italy and Portugal, 9% in France, 15% in Germany, 12% in the Netherlands and 8% in Spain. The above figures succinctly demonstrate that FIFA’s recommendation has not led to a de facto limitation of the remuneration paid to agents. This is also confirmed by a report for the EC that outlined the increase in agents’ fees following FIFA’s deregulation.

Benchmark cons

Potential low remuneration cap would, unavoidably, incite agents to breach their fiduciary duty and favour their own interests. Exempli gratia, they would rather clinch deals in FAs that contemplate higher commission fees, even if it is contrary to the best interests of their client’s career. Furthermore, reprehensible practices would definitely take place since agents’ commission and players’ remuneration function inversely (i.e. the more agents receive, the less players earn), while it is also likely that agents would be discouraged to provide high quality services.

In the same vein, it could lead to collision with EU law. As a matter of fact, it has already raised EU competition law concerns as some have considered it a disproportionate encroachment on agents’ economic freedom, thus, infringing Articles 101 and 102 TFEU.

Benchmark pros

On the flip side, I would like to play devil’s advocate going forward. Should the 3% cap on fees apply, this would ward off “agents” whose sole purpose is to make “quick and dirty” money. Therefore, the 3% cap could work as an indirect assessment of the ones who are worth of being agents.

Conflicts of interests

From the outset of the eventual transaction, players/clubs should endeavor to assure that no conflicts of interest exist.[20] 6 out of 8 FAs[21] have transposed ad litteram the provision stipulating the right of intermediaries to represent multiple parties to a transaction, so long as they have articulated in advance potential conflicts of interest and received written consent by all parties involved. The CSKA Sofia v. Loic Bensaid case could be considered as a precursor to this provision, in which it was stressed that an agent who represents both player and club does not commit fraud so long as he has made the situation transparent to the parties.[22]

In my view, said provision ostensibly solves potential conflicts of interest but de facto goes against agents’ fiduciary duty and ineluctably leads to such conflicts. By way of comment, should an agent represent both the player and the destination club, he would have to act in a neutral manner, which will adversely affect the player’s interests. In order to maintain healthy relationships with the club so as to facilitate future transactions, it is more likely that he will not seek the maximum salary possible for the player. Conversely, should the agent represent both the player and the club of origin, one can easily understand that a higher transfer fee reduces the player’s salary and vice versa.

In my view, with such provision, unwittingly or not, an own-goal has been inflicted as FAs are not incentivized to crack down on potential conflicts of interest. At least, if the French[23]/Portuguese[24] practice is not followed (i.e. dual representation is prohibited), the English model[25] could be an attractive solution. Notably, the possibility to seek independent legal advice should be construed as a necessary requirement that will safeguard players’ sporting/financial interests from being compromised.

Minors

Almost all FAs outlawed payments when the player is a minor.[26] Portugal[27] seems to have applied a more stringent standard (i.e. representation is totally forbidden), while Italy[28] does not stricto sensu prohibit such remuneration.

One might be tempted to conclude that outlawing payments is commendable but such perception is erroneous as the premise behind it goes against the players’ interests:

Agents not receiving consideration in exchange for their services would most likely not provide the best advice for their client, as, “good advice comes at a price”[29]
Agents would have a vested interest to tie up youngsters for many years, which might, in turn, work at their expense, as the former might seek to capitalize their investment in the players as soon as they get 18 years old. As submitted, when it comes to minors, unscrupulous agents can go “forum shopping” and seek to conclude a representation contract in the most favorable jurisdiction,[30] i.e. the one that does not limit the duration of said contract.

The foregoing should be read in conjunction with the fact that in modern football there are lots of talented young players with potential to become a bone of contention for agents. Further to this, due account should be taken of the fact that UEFA’s “home grown player rule” and the UEFA Financial Fair Play Regulations push clubs to invest in youngsters and this renders their circulation in the market more common than in the past.

The statistics provided by FIFA ITMS show that minors are the category of players who have most often used an agent, in 17.6% of the concluded international transfers against 15.2% and 14.5% between 18-25 and 26-32 years old, respectively. Therefore, it borders on the absurd that agents cannot be remunerated when engaged in transactions involving minors.

On top of that, higher thresholds ought to have been imposed i.e. the representation contract should have a limited term and for this, a useful inspiration could be derived from the case of Proactive Sports Management v Wayne Rooney, where it was decided that the eight-year image rights representation agreement[31] constituted an unreasonable restraint of trade.

Duration of the Representation Contract

FIFA’s RWI left a normative vacuum by not including a provision on the maximum duration of a representation contract. However, my comparative study shows that 5/8 FAs[32] impose a maximum 2 year term on the representation contract.

Such a limit protects not only the players’ but also the clubs’ interests against potential abuses involved in the engagement of agents for long periods.[33] Furthermore, it avoids conflicts pertaining to restraint of trade as the absence of limits could lead to players being tied to their agent for a disproportionate period of time.

However, since exclusivity (i.e. maximum duration of contract) is not prescribed in FIFA RWI, this could imply that they provide a safe harbor to players not to be contractually bound for a predetermined period of time. As submitted, this grants the players more bargaining power and would, indirectly, force agents to act in the best interests of their clients.[34]

Harmonization at European level

It is crystal clear that multiple national disparities exist in the regulation of agents. Hence, I believe a streamlined uniform regulatory framework is needed at the European level and, as such, could be put in place by UEFA’s FAs.

FAs Partnership

As football’s transfer money and underlying intermediaries’ commission fees are mostly concentrated in Europe, it should be underscored that consolidated RWI at the level of all European FAs would provide a more potent regulatory space and countervail “FIFA’s regulatory relinquishment”.

As FIFA switched the onus to FAs, some of them could come together and become embroiled in enforcing an enhanced monitoring system and stricter conditions of access to the profession. This has also been supported by the EU Sectoral Social Dialogue Committee for Professional Football, which formulated that such harmonized European policy is the desirable next step for a better regulatory oversight of agents. Such partnership could be a laudable response to the calls for a centralized and harmonized mandatory licensing system. It should be done in cooperation with the EFAA, so as to take into account the agents’ perspective and likely facilitate adherence to the regulations.

In this respect, it would be prudent to follow the examples of other Sports Associations. For example, FIBA when formulating effective regulations pertaining to agents promoted harmonization while involving the agents through consultation of AEBA. Pursuant to the latest EC Report, the National Basketball Players Association (“NBPA”) Regulations could also be considered as an example to follow, as they enhance the “professionalization” of agents and are based on a mandatory licensing system while setting accomplished higher education as an indispensable condition. The NFL, on the other side of the Atlantic, is also an interesting example as it requires a university degree or sufficient negotiating experience of minimum 7 years.

As it is generally felt that the agents’ business is “unethical, complex and deceptive”, thus stringent conditions should be imposed to enter the profession. A qualitative selection process is indispensable. Players must be able to rely on agents equipped with the necessary skills and knowledge. FAs should look back at the Piau case where the compulsory licensing system was duly endorsed as legitimate by the then Court of First Instance of the EU, inter alia, on the basis that it was necessary to introduce “professionalism and ethical standards to protect players whose careers are short”.

UEFA

On a separate note, UEFA, as it claims to operate in a spirit of consensus with all its stakeholders, has to be the leading frontrunner of a harmonised regulation. In the framework of Article 165 TFEU and UEFA’s conditional supervised autonomy[35], this could be done in dialogue with the EC that possesses coordination competence with regard to sport, so as to ensure that potential new regulations can resist challenges on grounds of restraint of trade and alleged infringements of EU law. The Arrangement for Cooperation signed by the UEFA and EC earlier in February 2018 could be a good starting point going forward.

Conclusions

It is unequivocal that FIFA’s RWI advent has had as a main repercussion the deregulation of the industry, or better put, the granting of autonomy to the FAs to regulate said industry using the minimum standards as the cornerstone. The case study, though, evidences that important disparities exist between crucial provisions of the various European FAs’ RWI, which leads to compounding practical and ethical problems and to higher risks of forum shopping.

It is forthwith conspicuous that such disparities create challenges, which could be duly faced, first and foremost, by accepting that agents are inherent to the mercato and, as previously alluded, by taking account of their fiduciary duty. Ergo, it is contingent upon European FAs, in the framework of UEFA, to cooperate so as to adopt a robust unified regime that will bring forward sweeping and streamlined changes to the profession. To do so, agents’ should be consulted and respected, as in the modern era of professional football, “they are the oil that keeps the wheels of international football in motion.”[36]

[1] WALTER T. CHAMPION, “Attorneys Qua Sports Agents: An Ethical Conundrum” (1997) 7 Marquette Sports Law Journal 349, 350.

[2] The term “agent” will be used, as it constitutes the international jargon.

[3] 2015 FIFA RWI, Definition of an intermediary.

[4] 2015 FIFA RWI, Preamble.

[5] 2015 FIFA RWI, Article 10.

[6] JUAN DE DIOS CRESPO and PAOLO TORCHETTI, “Limiting intermediaries’ fees and enhancing fiduciary duty” [2018] World Sports Advocate 11, 12.

[7] 2015 FIFA RWI, Articles 3 and 6(1).

[8] 2015 FIFA RWI, Preamble.

[9] JUAN DE DIOS CRESPO and PAOLO TORCHETTI, “FIFA’s new Regulations on Working with Intermediaries” [2015] Football Legal 36.

[10] Annex 11 to the URBSFA Regulations, Article 4 [1.3]; The FA website, Intermediaries Registration [online]. Available at: http://www.thefa.com/football-rules-governance/policies/intermediaries/intermediaries-registration [accessed on 1 May 2018]; Code du Sport, Article L.222-7; FIGC, Regolamento per i Servizi di Procuratore Sportivo, Art. 4(1), 4(3) and 5; KNVB Regulations, Article 2(6); PFF Regulations, Article 7(2); RFEF Regulations, Article 7.

[11] JUAN DE DIOS CRESPO and PAOLO TORCHETTI, “FIFA’s new Regulations on Working with Intermediaries” [2015] Football Legal 37; ORNELLA DESIREE BELLIA “FIFA Regulations on Working with Intermediaries: Analysis from the perspective of the clubs” in MICHELE COLUCCI (ed) The FIFA Regulations on Working with Intermediaries, Implementation at National Level (2^nd ed., International Sports Law and Policy Bulletin 1/2016) 57-66, 59.

[12] Code du Sport, Article L.222-7.

[13] RFEF Regulations, Article 4.

[14] IAN LYNAM and JONATHAN ELLIS, “Players’ Agents”, in ADAM LEWIS QC and JONATHAN TAYLOR (eds), Sports: Law and Practice (3rd edition, BLOOMSBURY 2016), 1418 – 1478, 1420.

[15] SALEH ALOBEILDI, “FIFA’s RWI – Historical overview” [2015] Football Legal 30.

[16] CAS 2006/A//1019 G. v. O., award of 5 December 2006 (anonymized) [11].

[17] 2015 FIFA RWI, Article 7(3).

[18] Annex 11 to the URBSFA Regulations, Article 8 [3]; FA Regulations, Rule C (11); FIGC, Regolamento per i Servizi di Procuratore Sportivo, Art. 6; KNVB Regulations, Article 8(6).

[19] Code du Sport, Article L. 222-17 ; DFB Regulations, Section 7.1-7.2; PFF Regulations, Article 11 ; In Spain no remuneration cap has been prescribed.

[20] 2015 FIFA RWI, Article 2(2).

[21] Annex 11 to the URBSFA Regulations, Article 9 [3]; FA Regulations, Rule E (2) a-c; DFB Regulations, Article 8; FIGC, Regolamento per i Servizi di Procuratore Sportivo, Art. 7; KNBV Regulations, Article 4; RFEF Regulations, Article 12.

[22] CAS 2012/A/2988, PFC CSKA Sofia v. Loic Bensaid (award of 14 June 2013) paras 74, 82 and 101.

[23] Code du Sport, Article L.222-17.

[24] PFF Regulations, Article 5(3).

[25] FA Regulations, Rule E (2) d.

[26] Annex 11 to the URBSFA Regulations, Article 8 [8]; FA Regulations, Art. C (10) ; Code du Sport, Article L.222-5; DFB Regulations, Art. 7.7; KNVB Regulations, Article 8(7); RFEF Regulations, Article 10.

[27] PFF Regulations, Article 5(4); The Physical Activity and Sports Basic Law (“PASBL”) or Law no. 5/2007, Article 37(2).

[28] SALVATORE CIVALE and MICHELE COLUCCI, “The FIGC Regulations on Intermediaries” in MICHELE COLUCCI (ed) The FIFA Regulations on Working with Intermediaries, Implementation at National Level (2^nd ed., International Sports Law and Policy Bulletin 1/2016) 329-338, 335.

[29] JEAN-MICHEL MARMAYOU, “EU Law and Principles applied to FIFA Regulations” in MICHELE COLUCCI (ed) The FIFA Regulations on Working with Intermediaries, Implementation at National Level (2^nd ed., International Sports Law and Policy Bulletin 1/2016) 75-112, 91.

[30] ROBERTO BRANCO MARTINS, “FIFA’s RWI – Agents’ perspective” [2015] Football Legal 50.

[31] The judge supported his argumentation by making reference to the obsolete FIFA Regulations, which stipulated that representation contracts were limited to a maximum two-year term, attaching to said agreement a unique character.

[32] FA Regulations, Art. B (10); FIGC, Regolamento per i Servizi di Procuratore Sportivo, Art. 5; PFF Regulations, Article 9(2) §c; RFEF Regulations, Article 8(4).

[33] CAS 2008/A/1665, J. v. Udinese Calcio S.p.A, (award of 19 May 2009) para 54.

[34] WIL VAN MEGEN, “The FIFA Regulations on Intermediaries: The players’ point of view” in MICHELE COLUCCI (ed) The FIFA Regulations on Working with Intermediaries, Implementation at National Level (2^nd ed., International Sports Law and Policy Bulletin 1/2016) 67-74, 74.

[35] BORJA GARCIA, “Sport governance after the White Paper: the demise of the European model?” (2009) 1:3 International Journal of Sport Policy 267; It was firstly stated in the Meca-Medina case [47]: “restrictions imposed by sports federations must be limited to what is necessary to ensure the proper conduct of competitive sport”.

[36] ROBERTO BRANCO MARTINS and GREGOR REITER, “Players’ Agents: Past, Present … Future?” (2010) 1-2 The International Sports Law Journal 7.

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Asser International Sports Law Blog | The Evolution of UEFA’s Financial Fair Play Rules – Part 1: Background and EU Law. By Christopher Flanagan

The Evolution of UEFA’s Financial Fair Play Rules – Part 1: Background and EU Law. By Christopher Flanagan

21. September 2017 Antoine Duval Blog, International Sports Law Cases, International Sports Law Commentaries (0)

Editor's Note: Christopher is an editor of the Asser International Sports Law Blog. His research interests cover a spectrum of sports law topics, with a focus on financial regulatory disputes, particularly in professional football, a topic on which he has regularly lectured at the University of the West of England.

It is five years since the Union of European Football Associations (UEFA) formally introduced ‘Financial Fair Play’ (FFP) into European football through its Club Licensing and Financial Fair Play Regulations, Edition 2012. With FFP having now been in place for a number of years, we are in a position to analyse its effect, its legality, and how the rules have altered over the last half decade in response to legal challenges and changing policy priorities. This article is split into three parts: The first will look at the background, context and law applicable to FFP; Part Two will look at the legal challenges FFP has faced; and Part Three will look at how FFP has iteratively changed, considering its normative impact, and the future of the rules.

Background

Certain aspects of FFP were incredibly controversial from the outset. To a neutral observer, this might seem confusing: FFP is, ostensibly, a set of rules designed to make sure clubs pay their bills on time, stay solvent, and do not need to look to external benefactors to cover their losses. Leading sports economist Stefan Szymanski described insolvency as “a chronic problem in the world of professional Association football”, so, superficially at least, a regulatory response to this would seem natural and appropriate. Where the market fails, it is the regulator’s duty to respond.

UEFA’s President at the time, Michel Platini, said “You, we, the fans and football lovers, have no interest in seeing clubs, the real heritage of European football, disappear due to risky management”. This is a sentiment with which most fans would agree.

Accordingly, UEFA incorporated FFP into its existing licensing requirements, meaning any club that wished to compete in a UEFA competition would be required to meet the financial standards set by FFP. These standards would be overseen and enforced by a new body within UEFA’s administration called the ‘Club Financial Control Body’. The Club Financial Control Body would be further segregated into an Investigatory Chamber and an Adjudicatory Chamber.

So, why the controversy? The contentious aspect of FFP was its ‘break even’ requirement. The ‘break even’ requirement is a de facto soft salary cap, tying the maximum amount a club can spend (with defined exceptions) to its revenue generation. An overview of the break even requirement as originally conceived can be found here. In essence, “The break-even result for a reporting period is calculated as relevant income less relevant expenses’’.^{^[1]} “Income” includes receipts such as gate receipts, sponsorship, broadcasting rights, commercial activities and player sales; “expenses” includes wages, the cost of purchasing players and the cost of finance.^{^[2]}

Crucially, when FFP was first introduced, losses could not be met or offset by equity participants (i.e. owners). This was pertinent to the prevailing financial climate in football, in which certain clubs across Europe were spending unprecedented sums with the support of wealth benefactors, who would cover the clubs’ losses. Such spending was seen at clubs such as Chelsea, Manchester City, Paris Saint Germain, Monaco, Malaga and Anzhi Makhachkala, with mixed results on and off the pitch.

Thus FFP was accused of calcifying football’s competitive hierarchy^{^[3]} and foreclosing smaller clubs from sporting and consequent business success. This debate has been played out over the last five years in the academic literature^{^[4]} and in various legal fora. The rules and the mechanisms for enforcing the rules have become increasingly sophisticated as the years have passed. UEFA, perhaps in response to these challenges, has made gradual, iterative changes to FFP that have seen the rules soften to accommodate exogenous equity input in defined permissible circumstances. These changes will be looked at in greater depth in Part Three.

The challenge of EU law

FFP has been described ‘legally fragile’, which is an apt description. This is because the rules cannot be said to be unquestionably permissible under European Union (EU) law; nor can they be said to be categorically in breach of EU law. The rules exist in a regulatory ‘grey’ area – FFP, in its particularly in its original, more restrictive, guise, may or may not have been illegal. This is a question for a competent (judicial) authority to decide; however, as will be discussed in more detail in Part Two, the route to such a decision has been far from straight forward, and in the intervening years, FFP has changed substantially.

The essential legal questions to determine the legality of FFP are:

Does FFP breach EU competition law?
Does FFP breach EU free movement law?
Is there a sanctuary for any breach of EU law under the doctrine of the specificity of sport?

EU competition law

Article 101 of the Treaty of the Functioning of the European Union (TFEU) prohibits agreements that have as their object or effect “prevention, restriction or distortion of competition within the internal market”.^{^[5]} This puts regulatory associations such as UEFA in a difficult position. It is the very nature of regulation that competition is restricted or distorted; indeed, it is the very purpose of regulatory rules that participants subject to those rules alter their behaviour accordingly, which has an inevitable consequence on the competitive landscape.

Consideration should also be given to Article 102 TFEU, which prohibits undertakings (and in some circumstances collections of undertakings, i.e. oligopolies) that are in a dominant position from abusing their market dominance.

In view of this friction, the European courts have developed, through the case of Wouters, the concept of regulatory ancillarity.^{^[6]} This is the doctrine under which, subject to a test of proportionality, reasonability and necessity, even in circumstances where there is a prima facie breach of competition law by a regulatory body (in that particular case by the Dutch Bar Association), this may be permissible under EU competition law where the regulatory body in question “could reasonably have considered that that regulation, despite the effects restrictive of competition that are inherent in it, is necessary for the proper practice of the [relevant profession]”.

The applicability of Wouters to a sporting regulatory context is confirmed and clarified in the landmark Meca-Medina case. In considering whether a regulatory rule breaches competition law, the European courts must determine:

Whether the rules are necessary for the proper conduct of the sport;
Whether the penalties are inherent to the restrictions in questions; and
Whether the effects of the rules are proportionate to the aims pursued.

Should UEFA be unable to meet the test under the regulatory ancillarity doctrine, there is an alternative exemption with a lower threshold to which it could look. Within Article 101(3) TFEU, there is an exemption for agreements which promote “technical or economic progress, while allowing consumers a fair share of the resulting benefit” as long as such restrictions do not (a) impose on the undertakings concerned restrictions which are not indispensable to the attainment of these objectives; or (b) afford such undertakings the possibility of eliminating competition in respect of a substantial part of the products in question.

It is open to UEFA to argue that FFP dampens inflation in football in a way that is for the improvement of the game and passes a benefit to ‘consumers’ (i.e. fans) by, for example, reducing the need for ticket price increases to sustain escalating players’ wages. This would perhaps be difficult for UEFA to establish, but the economics of FFP are complicated and second order effects should be borne in mind.

EU free movement – workers, services and/or capital

The EU is built upon certain deeply enshrined freedoms. These include the free movement of workers (Article 45 TFEU), the free movement of services (Article 56 TFEU), and the free movement of capital. Any agreement that acts as an impediment to these freedoms is susceptible to a finding of illegality.

In order to be permissible under EU law, any rule or agreement that restricts any fundamental freedom must be:

Justified by a necessary objective in the general interest;
Suitable for achieving that objective; and
Proportionate.

In the case of sporting rules, the European courts have determined that the rule in question must not “go beyond what is necessary for achieving the aim pursued”,^{^[7]} which is to reiterate that it must be proportionate – a recurrent theme in considering the legality of rules made by the governing bodies of sport, such as UEFA.

The criteria to be met by UEFA in establishing that FFP does not breach EU fundamental freedoms is in line with the threshold to be met in establishing compliance with EU competition law: FFP must be necessary, suitable and proportionate.

However, in the case of free movement law, it is far from obvious that FFP will have a substantive impact on fundamental freedoms. In previous writing on the subject, I have made the following analogy:

The restriction does not emanate from the rule per se, rather by the size of the club’s turnover; players are no more restricted from moving between clubs by FFP than this author is denied a Ferrari by his credit rating.^{^[8]}

The specificity of sport under EU law

In the event that a competent adjudicative authority makes a prima facie finding that FFP is in breach of EU competition law or EU free movement law, there is still a possibility of an overall finding that FFP is not illegal under the doctrine of the specificity of sport; however, this would require the adjudicative body in question to row back considerably from the current position, and general trajectory, of the level of latitude granted to the governing bodies of sport by the European courts.

The concept of specificity will be familiar to all those with an interest in sports law and policy. It is the hypothesis under which, at its starkest interpretation, suggests governing bodies, not courts (or governments or other legislative bodies), are best placed to determine how sport should be run. Sports, it is argued, should have rule making autonomy. A more moderate view on specificity holds that due regard should be paid to the idiosyncrasies of the sports sector and the legitimate governance function played by governing bodies.

The role of sports governing bodies, whose rules, as was the case with FFP, are often enacted in a broadly consensual way, with engagement, input and consent from key stakeholders, should be acknowledged and some due reverence should be paid to governing bodies' ability to regulate the sporting aspects under their aegis.

Indeed, the European Union had no express competence to in respect of sport until the introduction of Article 165 TFEU, a soft competency, which states that, “The Union shall contribute to the promotion of European sporting issues, while taking account of the specific nature of sport, its structures based on voluntary activity and its social and educational function.”

However, the distinction between elite football as being ‘purely sport’ and elite football as a business has become blurred in to the point of being indistinguishable; and the EU clearly has express competence to deal with business.

The general trend in decisions of the European courts has been to circumscribe self-determination by the governing bodies of sport. Through cases such as Bosman,^{^[9]} Meca-Medina, and Bernard,^{^[10]} the European courts have made it clear that sport cannot avoid or cherry-pick the applicability of EU law. This is acutely relevant in the case of FFP, which, after all, deals with how football clubs are run financially. There are obvious sporting consequences to this, but it is difficult to characterise FFP as anything other than a rule restrictive of the business of sport.

UEFA’s position on Article 165 is that “while sport is not ‘above the law’, there is now a provision in the Treaty itself recognising that sport cannot simply be treated as another ‘business’, without reference to its specific characteristics”. This is not an unreasonable position; sport is a unique industry in which, unlike other industries, the survival of competitors is important for any given club to flourish. Perhaps the courts could be persuaded that a carve-out based on specificity should be applicable to FFP – but this would require a seismic change of direction.

So it is incredibly unlikely that specificity as a discrete sui generis doctrine would give sanctuary to FFP were the rules deemed to be otherwise in breach of EU law. However, facts peculiar to the football industry (i.e. its specificity) should be considered as part of an assessment as to whether FFP is a proportionate mechanism to pursue UEFA’s objectives. As noted above, proportionality is a limb of the tests for derogations to EU competition and fundamental freedom law.

I have previously commented that:

For football clubs, there is a strong correlational link between spending money and playing success. This has encouraged clubs to risk financial vulnerability in pursuit of improved match results, despite the mathematical impossibility of all clubs being able to improve their fortunes on the field. This innate instability has resulted in persistent insolvencies despite the remarkable growth in turnover seen in the professional game. Regrettably, when balance sheets weaken, the risk of insolvency increases; and once a club becomes insolvent, its survival is subject to the predilections of its creditors. The game’s governing bodies should aim to militate against…this volatility.

UEFA would doubtless argue that, given the specific nature of the industry it regulates, instituting a soft salary cap such as that implemented by FFP is a proportionate response. In that sense at least, the specificity of sport might be of consideration in the legality of FFP.

Conclusion

It is difficult to say with any degree of conclusiveness whether FFP is legal or not. There are strong arguments either way. The marginal nature of the legal position has been problematic for UEFA and has undoubtedly led to the legal challenges to FFP over the last five years, which are discussed in greater depth in Part Two of this series.

The uncertain legal position, and the challenges generated by that lack of clarity has also, in all likelihood, shaped UEFA’s policy decisions as FFP has evolved in the years since its inception. These are discussed in Part Three of this series.

FFP has certainly been fertile ground for debate, and will likely continue to be so until such a time as there has been a determinative, binding view of its legality. When or whether this will happen remains to be seen.

^{^[1]} Annex X, Club Licensing and Financial Fair Play Regulations, Edition 2012.

^{^[2]} Ibid.

^{^[3]} Thomas Peeters and Stefan Szymanski , 'Financial Fair Play in European Football ' [2014] 29(78) Economic Policy 343-390

^{^[4]} See, for example, Serby, T. (2016) The state of EU sports law: lessons from UEFA’s ‘Financial Fair Play’ regulations, International Sports Law Journal 16(1–2):37–51; Flanagan, C (2013) A tricky European fixture: an assessment of UEFA’s Financial Fair Play regulations and their compatibility with EU law, International Sports Law Journal 13(1):148; Lindholm, J (2010) The Problem with Salary Caps Under European Union Law: The Case Against Financial Fair Play, Texas Review of Entertainment and Sports Law, Vol. 12.2, pp. 189-213

^{^[5]} Noting that UEFA certainly constitute an association of undertakings in the relevant legal sense, see for example Case T-193/02 Piau (2005) ECR I-209, (2005) 5 CMLR 42 or EU Commission decision 2003/778/EC, 23 July 2003, Case COMP C.2-37.398 - Joint selling of the commercial rights of the UEFA Champions League §§ 106-107

^{^[6]} As identified and defined by Whish and Bailey in Competition Law (OUP, 8th)

^{^[7]} Case C-176/96, Jyri Lehtonen and Castors Canada Dry Namur- Braine ASBL v Fédération Royale Belge des Sociétés de Basketball ASBL (FRBSB) ECR (2000) I-2681

^{^[8]} Flanagan, C (2013) A tricky European fixture: an assessment of UEFA’s Financial Fair Play regulations and their compatibility with EU law, International Sports Law Journal 13(1).

^{^[9]} Case C-415/93 Union Royale Belge des Socie ́te ́s de Football Association ASBL v Jean-Marc Bosman (1995) ECR I-4921.

^{^[10]} C-325/08 Olympique Lyonnais v Olivier Bernard and Newcastle United FC (2010) ECLI:EU:C:2010:143.

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Asser International Sports Law Blog | The Evolution of UEFA’s Financial Fair Play Rules – Part 3: Past reforms and uncertain future. By Christopher Flanagan

The Evolution of UEFA’s Financial Fair Play Rules – Part 3: Past reforms and uncertain future. By Christopher Flanagan

4. October 2017 Antoine Duval Blog, International Sports Law Commentaries (0)

Part Two of this series looked at the legal challenges FFP has faced in the five years since the controversial ‘break even’ requirements were incorporated. Those challenges to FFP’s legality have been ineffective in defeating the rules altogether; however, there have been iterative changes during FFP’s lifetime. Those changes are marked by greater procedural sophistication, and a move towards the liberalisation of equity input by owners in certain circumstances. In light of recent statements from UEFA President Aleksander Čeferin, it is possible that the financial regulation of European football will be subject to yet further change.

FFP from 2010 to 2015

FFP was integrated into UEFA’s licensing requirements in the Club Licensing and Financial Fair Play Regulations Edition 2010. In the 2010 Edition, implementation of FFP was to be overseen by the UEFA Club Financial Control Panel. Disciplinary action was carried out by the UEFA Control and Disciplinary Body, whose decisions could be appealed to the UEFA Appeals Board.

In the Club Licensing and Financial Fair Play Regulations Edition 2012, the oversight and disciplinary procedure of FFP was amended. The functions of the Club Financial Control Panel, Control and Disciplinary Body, and Appeals Board were replaced with a two-tier Club Financial Control Body (CFCB). The two chambers of the CFCB are the Investigatory Chamber, which actively monitors FFP compliance; and the Adjudicatory Chamber, which levies sanctions for non-compliance.

Under Article 53.1 of the 2012 Edition rules, the CFCB “carries out its duties as specified in the present regulations and the Procedural rules governing the UEFA Club Financial Control Body” (the Procedural Rules). The bespoke Procedural Rules establish a framework for the composition of the CFCB, the decision making processes of both the Investigatory and Adjudicatory Chambers, and the rules applicable to the whole proceedings. Like the Club Licensing and FFP Regulations, the Procedural Rules have gone through iterative changes (2014, and 2015 editions).

The Procedural Rules are a welcome development to FFP, ensuring the independence of the CFCB (Articles 6 and 7); bestowing broad investigatory powers upon the Investigatory Chamber (Article 13); and setting clear parameters for disciplinary action and process, including setting out potential disciplinary measures (Article 29). Overall, the Procedural Rules increase the legal sophistication of the end-to-end FFP process, and in doing so reduce the risk of irrational or arbitrary outcomes. This protects clubs and UEFA; clubs who are in breach of FFP have clear guidance on the process that will be followed; clubs who adhere to FFP are reassured that those clubs who breach the rules will be put through a sophisticated investigation and (if necessary) disciplinary process (and additionally, pursuant to Article 22, where third party clubs and member associations are affected and have a legitimate interest in joining proceedings before the Adjudicatory Chamber, may do so); and UEFA, in having a clear and detailed rules governing procedure, helps to insulate FFP from legal challenge.

(By way of aside, in light of the changes to the procedure governing FFP sanctions, it is noteworthy that Bursaspor, in CAS 2014/A/3870 Bursaspor Kulübü Derneği v. Union des Associations Européennes de Football, argued that Control and Disciplinary Body and Appeals Board were “not professional on financial subjects”, although the Turkish club was unsuccessful in its appeal, and UEFA’s rebuttal was to highlight that the Club Financial Control Panel was made up of “financial and legal experts” and that the creation of the CFCB was “principally motivated by a desire to streamline the process”.)

Amongst the Procedural Rules, Article 33 stipulates that decisions of the Adjudicatory Chamber are to be published (subject to redaction to protect confidential information or personal data), which has the effect not just of increasing the transparency of UEFA’s decision making, but also of increasing the transparency of the financial affairs of European club football.

Settlement Agreements

One of the more dramatic changes implemented by the Procedural Rules was the implementation of ‘Settlement Agreements’, which are “aimed at ensuring that clubs in breach of the break-even requirement become compliant within a certain timeframe and are designed to be effective, equitable and dissuasive.”

Settlement Agreements have been described as “basically a plea bargain”. Redolent of the settlement procedures in many competition law or white collar crime regimes, Settlement Agreements are consensual agreements entered into between a party who has breached FFP and the CFCB, which avoid the need for a breach to be referred to the Adjudicatory Chamber (Article 15.1). Settlement Agreements have been viewed by the CAS as effectively giving clubs a ‘second chance’ to comply with FFP (CAS 2016/A/4692 Kardemir Karabükspor v. UEFA), albeit with more stringent conditions applied.

Settlement Agreements may include sanctions and timeframes for compliance (Article 15.2) and are monitored by the CFCB Chief Investigator (Article 15.4). If there is a breach of a settlement agreement, the matter is then referred to the Adjudicators Chamber.

FFP from 2015

The next major changes to FFP were implemented in the Club Licensing and Financial Fair Play Regulations Edition 2015.

Introduction of Voluntary Agreements

In contrast to the ex post compliance approach of Settlement Agreements, Voluntary Agreements are an ex ante mechanism for clubs to derogate from the normal FFP standards, with the ultimate aim of complying with the break-even requirement. Voluntary Agreements are defined as being “a structured set of obligations which are individually tailored to the situation of the club, break-even targets defined as annual and aggregate break-even results for each reporting period covered by the agreement, and any other obligations as agreed with the UEFA Club Financial Control Body investigatory chamber” (Edition 2015, Annex XII A.5). They can last for up to four reporting periods (Annex XII A.3).

In order to enter into a Voluntary Agreement, a club must adhere to certain procedural requirements. These include submitting a long-term business plan “based on reasonable and conservative assumptions” (Annex XII B.2(a)).

On the face of it, the concept of the Voluntary Agreements–allowing clubs with new owners to incur debts on the promise of future FFP compliance–sounds like a recipe for sort of financial peril FFP was created to avoid. However, in order to be allowed to enter into a Voluntary Agreement, there must be put in place “an irrevocable commitment(s) by an equity participant(s) and/or related party(ies) to make contributions for an amount at least equal to the aggregate future break-even deficits for all the reporting periods covered by the voluntary agreement” (Annex XII B.2(c)).

Break Even Limit Increase

Another significant change implemented by the Club Licensing and Financial Fair Play Regulations Edition 2015 was a variation to the quantum of the break even limits in certain circumstances. The limits were increased from €5m to €45m for assessment periods 2013/14 and 2014/15, and €30m for assessment periods 2015/16, 2016/17 and 2017/18 “if it is entirely covered by a direct contribution/payment from the club owner(s) or a related party” (Article 61.2).

This balance between short-term losses, guaranteed in the event of financial failure (per the Voluntary Agreement process) or offset by owner input, against long term sustainability are superficially congruent with the objectives identified by UEFA for its licensing regime, which include “to introduce more discipline and rationality in club football finances; to encourage clubs to operate on the basis of their own revenues; to encourage responsible spending for the long-term benefit of football; and to protect the long-term viability and sustainability of European club football” (Article 2 (c)-(f)). But this takes a somewhat narrow view of the impact of spending in football. A club’s spending affects not just a buying and selling club in a market transaction for a player’s registration, but affects the overall market in football players.

Inflation in the market for player registrations far outstrips inflation across the broader economy (by one estimate, inflation in football transfer fees runs ten times higher than inflation in the “normal” economy – and those figure were calculated before Paris Saint Germain doubled the record transfer fee with the purchase of Neymar in the summer of 2017. Player wage growth runs at over 10% per annum. Voluntary Agreements and increased owner investment may contribute to this vertiginous inflation. This runs in contrast to some of UEFA’s messaging around FFP. For example, it has previously been stated that FFP was intended to “decrease pressure on salaries and transfer fees and limit inflationary effect”.

Of course, it should be borne in mind that there is nothing inherently wrong with inflation where it is sustainable; but when considered in an environment where capital is accruing to the wealthy elite (top 15 European clubs) at a quicker rate than the rest of the market (see UEFA’s Financial Fair Play Regulations and the Rise of Football’s 1% by van Maren for further analysis), there is a risk of bifurcation of the financial capabilities of football clubs, with inflation marginalising the non-elite. European clubs have seen revenue growth at over 9% per annum on UEFA’s figures, although since 2009, the average English Premier League club has added “five times more revenue than the average Italian Serie A or French Ligue Un club”. Inflation, if not intrinsically problematic, certainly has the potential to cause problems; and UEFA, in administering and approving Voluntary Agreements, and in weakening its stance on owners offsetting losses, should consider the impact on inflation and stability. Voluntary Agreements and financial input by owners are potentially gateways to the elite level; however, this should not be at the expense of those who do not have wealthy owners or pre-existing wealth.

Perhaps more significantly, there is a normative dimension to the introduction of Voluntary Agreements and the relaxation of financial input from benefactors. The message behind FFP was one of “revolutionising European football”, with then President of UEFA Michel Platini saying that UEFA would “never [be] going back on this.” Quite conversely, the changes brought about by the 2015 Edition of FFP were welcomed with a message of FFP being “eased”. This is disappointing because, on UEFA’s own figures, FFP has had a considerable positive impact on the European football financial landscape. On one view, allowing equity input from owners is a pro-competitive encouragement of exogenous investment; on another, it is rowing back from a positive and successful policy initiative at the expense of those not fortunate enough to have a benefactor owner.

The impact of FFP

In defence of its loosening of the restriction on loss-making, UEFA would doubtless point to the positive impact the FFP has had to date,^{^[1]} which, perhaps, creates financial latitude that once did not exist.

As a part of FFP, the clubs under UEFA’s direct jurisdiction report standardised, audited, financial information. UEFA publishes annual benchmarking reports, which draw upon the information clubs submit. Since the introduction of FFP, there has been a general positive trend in European clubs’ finances.

For example, UEFA’s 7th Benchmarking Report, covering the financial year 2014, showed wage growth to have slowed to its “lowest rate in recent history” at 3%. Overdue payables (essentially debts that clubs owe but have not paid on time) had reduced by 91%. The most recent report published by UEFA, its eight Club Licensing Benchmarking Report, covering the financial year 2015, indicates that clubs “have generated underlying operating profits of €1.5bn in the last two years, compared with losses of €700m in the two years before the introduction of [FFP]”; whereas “Combined bottom-line losses have decreased by 81% since the introduction of [FFP]”.

Of course, there are methodological problems in ascribing the improvement in European clubs’ finances exclusively to FFP when in reality there are a combination of factors at play. However, what we can comfortably say is that there is an evident correlation between FFP and the stabilisation of the football financial landscape.

There is also a second-order effect of FFP at play. UEFA, in its position as the game’s regulator, in introducing FFP, has had a hegemonic influence on the governance of the game at national level. For example, in England, domestic iterations of FFP have been instituted in the Football League, and the Premier League has introduced its own Short Term Cost Control Measures.

Thus, by setting the tone of sustainability expectations, UEFA has influenced the financial stability of clubs outside of its jurisdiction. This is highlighted neatly in the following passage from UEFA’s eight Benchmarking Report:

“The centrepiece of financial fair play, the break-even rule, may not directly address small and medium-sized clubs with costs and incomes below €5m, but financial fair play has other direct and indirect impacts on these clubs. Direct in that UEFA and the Club Financial Control Body pass their eyes over detailed financial data from all clubs competing in UEFA competitions and in particular take careful, regular note of all overdue payables. And indirect in that financial fair play has resulted in a significantly higher level of scrutiny of club finances and the actions of club owners and directors. In addition, some countries, such as Cyprus, have introduced their own versions of financial fair play, tailored to their clubs and the scale of their financial activities.”

So, whilst UEFA can legitimately point to the more secure position across the financial landscape as a good reason that Voluntary Agreements or wider economic input from owners will do no harm, it should continue to reflect on the message this loosening of FFP may send to the wider football market.

FFP Exemptions

One area of change for which UEFA should be applauded is in its use of certain exemptions from the FFP ‘break even’ calculation. These include areas such as infrastructure and youth football, both essential to the game’s long-term sustainability. By exempting these areas from the break even calculation, clubs’ owners are incentivised to invest (by equity rather than debt) in the game’s future, without an impact on short-term competitiveness.

More recently (from 2015), UEFA has moved to exclude expenditure on women’s football from the break-even calculation (Annex X C(i). Again, UEFA should be praised for taking positive steps to encourage growth across less wealthy areas of the game.

The Future of FFP after Neymar

Over the summer of 2017, public interest in FFP has reignited. The rules are now becoming synonymous with Neymar and his new club, Paris Saint Germain, after the Brazilian player’s reported €222m release clause was activated, doubling the world record fee for a player transfer. This move, followed by French player Kylian Mbappe joining Paris Saint Germain from Monaco for similarly large fee, has upset some in the game.

These events pose a significant problem for UEFA. It is not yet known whether PSG are in breach of FFP (and, of course, it is conceivable that they have sufficient financial capabilities to fund the purchases without any breach of the rules); however, the transactions have raised questions, including La Liga President Javier Tebas stating that he believed PSG were guilty of “infringing on UEFA regulations, financial fair play and EU laws”, and Arsenal manager Arsène Wenger saying that “it looks like we have created rules that cannot be respected…there are too many legal ways to get around it.”

The public grievances around FFP precipitated by PSG’s spending do, to an extent, seem to conflate simply spending large sums of money with breaching FFP. The rules do not prohibit spending large sums on transfers or otherwise; rather, they limit how much debt can be incurred by a club, assessed over a three year rolling period, with only limited equity input from an owner. The rules were not designed to prevent a €222m transfer per se (with the fee amortised across the length of the contract period, as is standard practice in the football industry); rather, they were designed to ensure that any such spending was sustainable, and did not put clubs at risk.

However, FFP is a reactive, not a proactive tool. Clubs report spending after the event; they are not required to seek permission from UEFA to make a capital investment. This ex post approach does perhaps reveal a flaw in managing any egregious short-term infractions that should arise, the impact of which will be felt by other clubs before UEFA, through the CFCB, can have its say.

The broader problem associated with PSG’s spending is one of opacity. PSG is owned by Oryx Qatar Sports Investments, which is an investment vehicle for the state of Qatar. There were contemporary (unconfirmed) reports that the deal would be structured to take place off of PSG’s accounting books, with Neymar being paid the value of his release clause directly for agreeing to become an ambassador to the Qatar World Cup, so that he could in turn pay his own release clause. If true, this would notionally take the release clause fee off of PSG’s books, but would almost certainly qualify as a related party transaction with the meaning of FFP’s Annex X F and thus remain examinable by the CFCB. Similarly, it was reported that PSG’s loan-come-purchase of Kylian Mbappe was “complex”. While complicated transfer arrangements are to be expected in a game that is going through increasing commercial sophistication, there are evidently some suspicions that PSG are attempting to circumvent FFP (or, more colourfully, ‘peeing in the pool’).

However, UEFA anticipated clubs employing ‘creative’ tactics to superficially comply with FFP, and gave the CFCB jurisdiction to consider “at all times…the overall objectives of these regulations, in particular to defeat any attempt to circumvent these objectives” (Article 72.1). (At this stage, one can only speculate as to what, if any, FFP objectives PSG may have breached, but the CFCB will surely consider Article 2.2 (a) and (c) - (f)).

UEFA has publicly stated that it is investigating PSG’s FFP compliance, saying “The investigation will focus on the compliance of the club with the break-even requirement, particularly in light of its recent transfer activity”. Of course, this should not be particularly surprising given the CFCB annually examines the finances of each club that enters into UEFA competitions under the standard FFP procedure, but it will be interesting to observe how CFCB’s investigation progresses, and, if PSG is found to have breached FFP in letter or in spirit, what punishment is meted out to PSG.

Whether PSG’s aggressive spending was emboldened by UEFA’s weakening of the more restrictive elements of FFP will remain unknown. Similarly, one can only speculate as to whether the dilution of FFP, through changes such as the implementation of Settlement Agreements and Voluntary Agreements, came about as a result of legal challenges already brought and defended by UEFA; or whether UEFA is insulating itself from further legal challenges; or whether UEFA is simply altering the rules for the good of the game. As detailed in Part One of this series, the legality of FFP will rest on its proportionality. These changes have moved FFP towards a more flexible, and arguably more proportionate, proposition; but, given the public exposure that PSG’s spending has precipitated,UEFA will surely wish to ensure that FFP is not seen as a paper tiger.

The matter is on UEFA’s agenda. Even before the events involving PSG in the summer of 2017, incoming UEFA president, Aleksander Čeferin, spoke about the possibility of a fixed wage cap and closing the gap between the game’s haves and have nots. Such changes would certainly make FFP more congruent with its name. FFP is not about being ‘fair’ in the sense of being egalitarian or introducing a level playing field. It is a gentle brake applied to the rate of growth in the game, aimed predominantly at reducing long-term loss making and insolvency. Perhaps the rules might have been less controversial from the outset, and might not have been a mechanism for the frustration ventilated by sum following PSG’s purchase of Neymar and Mbappe, if instead of being called FFP, the rules were called ‘financial management rules’, and absolved themselves from the pretence of ‘fairness’.

Alternatively, UEFA could revisit FFP, implementing a genuinely egalitarian set of rules – a hard salary cap, a luxury tax, the abolition of the transfer market, or some combination of those things and others. This would, however, undoubtedly engender its own set of legal challenges, as we have seen with FFP.

Whilst the challenges to various aspects of FFP have been largely ineffective in defeating FFP (see for example CAS 2016/A/4692 Kardemir Karabükspor v. UEFA; CAS 2016/A/4492 Galatasary v. UEFA; CAS 2014/A/3870 Bursaspor Kulübü Derneği v. UEFA; CAS 2014/A/3533 Football Club Metallurg v. UEFA; CAS 2013/A/3067 Málaga CF SAD v. UEFA; CAS 2012/A/2824 Beşiktaş JK v UEFA; CAS 2012/A/2821 Bursaspor Kulübü Dernegi v. UEFA; CAS 2012/A/2702 Györi ETO v. UEFA ), the rules have, against the backdrop of repeated disputes about their legality, iteratively changed, including a move towards greater liberalisation in respect of equity input into clubs by owners.

And so UEFA finds itself at a crossroads. FFP, bombarded with legal challenges (which it has to date ridden) has gradually developed and liberalised as financial stability in European football has improved. Now, with the transfer market having escalated, the efficacy of the rules has come into question. UEFA must decide on the path it wishes to take; whether to liberate the market altogether, whether to institute a truly ‘fair’ system, or whether to continue on FFP’s current centrist ground. Aleksander Čeferin, a lawyer by extraction, is certain to face a legal and political struggle in whichever direction he turns.

^{^[1]} For further discussion on the efficacy of FFP, see Neil Dunbar (2015) "The union of European football association’s club licensing and financial fair play regulations - are they working?" ISSN 1836-1129 http://epublications.bond.edu.au/slej/27

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Asser International Sports Law Blog | The 2014 Dortmund judgment: what potential for a follow-on class action? By Zygimantas Juska

The 2014 Dortmund judgment: what potential for a follow-on class action? By Zygimantas Juska

9. February 2015 Oskar van Maren Blog, International Sports Law Cases, International Sports Law Commentaries (0)

Class actions are among the most powerful legal tools available in the US to enforce competition rules. With more than 75 years of experience, the American system offers valuable lessons about the benefits and drawbacks of class actions for private enforcement in competition law. Once believed of as only a US phenomenon, class actions are slowly becoming reality in the EU. After the adoption of the Directive on damages actions in November 2014, the legislative initiative in collective redress (which could prescribe a form of class actions) is expected in 2017.[1] Some pro-active Member States have already taken steps to introduce class actions in some fashion, like, for example, Germany.

What is a class action? It is a lawsuit that allows many similar legal claims with a common interest to be bundled into a single court action. Class actions facilitate access to justice for potential claimants, strengthen the negotiating power and contribute to the efficient administration of justice. This legal mechanism ensures a possibility to claim cessation of illegal behavior (injunctive relief) or to claim compensation for damage suffered (compensatory relief).

Class actions in antitrust and the sport sector

Throughout the years, US class actions have become an important tool to strengthen good governance in the sports sector. Due to alleged antitrust infringements, US sports organizations have been hit with a series of class action lawsuits. The most recent and the most prominent example is the antitrust class action lawsuit O'Bannon v. NCAA. On 8 August 2014, the US District Court ruled in favour of former UCLA basketball player O'Bannon and 19 others, declaring that the National Collegiate Athletic Associations’ (NCAA) longstanding refusal to compensate athletes for the use of their name, image and likenesses (NILs) violates US antitrust laws. Previously, the college sports governing body required student-athletes to sign ‘Form 08-3a’ in which they authorize the NCAA to use their “name or picture to generally promote NCAA championships or other NCAA events, activities or programs”, without receiving compensation. If the NCAA loses the appeal, it must allow schools to give athletes some of the money they bring in by licensing their NIL. For further discussion on the O’Bannon case, see my previous blog.

In the EU, however, antitrust class actions remain an underrated remedial option in EU competition policy and the sports sector (the same is true for competition law in general). As is well known, sports federations often have practical monopolies within certain markets. In particular, due to the substantial economic revenues of these markets, sports federations have the tendency to abuse their dominant position in contradiction with Article 102 TFEU. It is not unthinkable that the positive experiences with class actions in the US may serve as an inspiration for victims in the EU to go against powerful sports organizations. Here, useful insights may be derived from the German Handball case, which can be used as an example to explore the potential of class actions as a remedy. On 15 May 2014, German Bundesliga teams (30 of them) won the antitrust case against the International Handball Federation (IHF) and the German Handball Federation (DHB) at the regional court of Dortmund (Landgericht). For further discussion on the 2014 Dortmund judgment, see here.

The 2014 Dortmund judgment: A comparative analysis with the O’Bannon case

The Court in Dortmund held that an obligatory release system of players for activities of their respective national teams without compensation constitutes an abuse of a dominant position prohibited by German competition law (§ 19 Gesetz gegen Wettbewerbsbeschränkungen, GWB) and Article 102 TFEU, while it also breaches the principle of good faith in contractual performance.[2] Until the judgment, German Bundesliga clubs had no other way but to release their players if they were invited to join their national team within the international calendar. According to the IHF Player Eligibility Code, “a club having a foreign player under contract is obliged to release such player to his National Federation if he is called up to take part in activities of that federation's national team” (Article 7.1.2). Furthermore, a club releasing a national player was not entitled to receive any kind of compensation and in the event of personal injury the insurance coverage was not provided (Articles 7.2-7.3). After the judgment, the IHF and the DHB should pay a fair compensation for the time of the release of the player.

On the one hand, both cases have striking similarities. The judgments concern antitrust infringements by powerful sports federations, the IHF (also the DHB) and the NCAA respectively. Professional clubs / student athletes in both cases are not entitled to compensation due to the rules that have been set by sports organizations. The German case concerns the obligation for professional clubs to release players to national team events without receiving compensation, while the US case concerns the prohibition for student athletes to receive compensation from NIL.

On the other hand, although both cases concern antitrust infringements by the sports organizations, they also have vital differences. Most importantly, the O'Bannon case is an antitrust class action lawsuit filed against the NCAA. This class action proved to be a powerful instrument that managed to jeopardize the long-standing fundamental principle of amateurism on which the whole economic and social system of the NCAA lies. Until now, however, the 2014 Dortmund judgment has been an ordinary litigation according to German law. However, it does share some similarities with O’bannon that may justify a class action in the form of an injunctive relief (at least, in the first instance), subject to some exceptions.

Indirect class action for an injunction

What is injunctive relief in class action cases? According to the European Commission, the courts should treat claims for injunctive orders requiring cessation of or prohibiting a violation of rights granted under EU law in order to prevent any or further harm causing damages.[3] According to the German law, in case of danger of recurrence, the infringer has to refrain from his conduct.[4] Perhaps surprisingly, the 2014 Dortmund judgment already fulfils the conditions for an indirect class action for an injunction.

First, a group of claimants (a total of 30 Bundesliga clubs) sued the IHF and the DHB before the regional court of Dortmund. They argued (together) that mandatory release of players to the national team constitutes an abuse of a dominant position prohibited by EU and German competition law. The Dortmund court ruled in favour of the handball clubs. It seems that handball clubs only seek the cessation of the unlawful practice, yet they have not claimed the compensatory relief, aimed at obtaining compensation for damage suffered.

Second, the claim has been initiated by victims of antitrust infringement. Under the GWB, victims are allowed to bring private actions for injunctive relief in 101 and 102 TFEU infringement cases (Sec. 33).

Third, the Forum Club Handball (FCH) financially supported the court case. This may appear as third-party financing since the financial support was provided by a private third party who is not a party to the proceedings.[5]

Although the handball clubs dropped a quiet collective bombshell, the action cannot be considered as a real class action. Simply, there was no intention to pursue a class action. Another point is that the legal standing to bring the representative action has been limited to a law firm. In Germany, collective antitrust action can be brought by a body, which has a legal standing and to whom the claims of victims of a cartel have been assigned (Sec. 33 (2) GWB). Similarly, under Sec. 8 of the German Unfair Competition Act (UWG), the claims can be sought by: a) competitor; b) qualified entities listed with the Federal Office of Justice or, in case of foreign entities, with the European Commission; and (c) by Chambers of Industry and Commerce or Craft Chambers. For these reasons, the action brought by the clubs cannot be classified as a class action, because they have chosen to be represented by an attorney. It is not unthinkable that eventually the case will appear before the court as a follow-on compensatory class action, if the IHF and the DHB lose the appeal (if necessary, the proceedings before the Court of Justice).

Compensatory class action: why it could be a big deal?

If the handball clubs achieve an injunction in the final Court decision, the follow-on representative action for damages may be brought against the IHF and the DHB. Some provisions in German law facilitate the incentives to bring damages claims for antitrust infringements. According to Sec. 33(4) GWB, antitrust class actions should be brought after a final decision of a public authority finding there has been a violation of competition law. Furthermore, the 8th Amendment of GWB broadens the scope of the legal standing in such a way that all associations of undertakings that are affected by an infringement, as well as consumer associations, are in principle able to claim the enforcement of German competition law in courts (including by demanding damages). Yet it appears that the UWG provisions are not applicable in this case. Under Sec. 8 available remedies allow to pursue only injunctive relief. Under Sec. 9 damages are claimed by competitors (only). Sec. 10 aims at skimming off profits (paid to the Treasury), but not at compensating victims. Due to the fact that illegal profits go to the Treasury in successful cases, the handball clubs would potentially not be happy with the expected outcome.

If the IHF and the DHB lose the appeal, the handball clubs can to a significant extent rely on the final decision. Considering that an indirect form of collective action has already been pursued by the handball clubs in the first instance, a common consent of the parties involved in the case (the major condition for class action) can be easily achieved. Still, the major concern is to solve the issue of legal standing. An actual example of class action that goes with the grain of the German law and is the Cement Cartel Case, in which 28 damaged companies purchased the cartel-related claim to Cartel Damage Claims group (CDC).[6] It is a Brussels based professional litigation that turns burdensome claims into valuable assets, taking the hassle of quantification and subsequent enforcement. The substantiation of the claim is based on evidence gathered from the cartel proceedings and the damaged companies. In the context of the German handball case, CDC could commence the acquisition of damages claims from handball clubs and then file the collective antitrust damages action against the IHF and the DHB. This is in line with the Sec. 33 GWB under which CDC has legal standing and to whom the claims under Art. 101 and 102 TFEU have been assigned. An action brought by CDC is attractive to the handball clubs because it would strengthen the negotiating power and would reduce litigation costs, as the claim is led (or even purchased) by CDC.

If the conditions for the admissibility of class action are fulfilled, the IHF and the DHB should fear potential damages. In particular as a result of the inconsistent application of the Player Eligibility Code, the claimants are in a favourable position. Despite the fact that the Code states that “a club releasing a national player shall not have any claim to compensation”, the IHF agreed to pay compensation to the clubs for the release of their players to the national team during the 2011 and 2013 World Championships. To make matters even worse, the IHF provided insurance for the players’ salaries in case of personal injury (contrary to the Article 7.3.2).[7] This suggests that in principle a compensation and insurance coverage are compatible with the Eligibility Code and thereby the interests of the IHF are not jeopardized. The perceived inconsistency provides more clout to the claimants, suggesting that the harm has already been presumed. If the plaintiffs achieve an injunction in Court, they potentially may claim broad compensation, including other undisputed World Championships[8], the Olympic Games, continental championships as well as the qualification matches and tournaments for these events. However, it is even not the worst potential outcome for the IHF. Indeed, due to the Court of Justice (CJEU) decision in Case C-302/13 flyLAL-Lithuanian Airlines, potentially all handball clubs from EU Member States can claim damages from the IHF, if they are part of the federation. In that case, the Latvian Supreme Court sent a request for a preliminary ruling under Article 267 TFEU, asking whether a Lithuanian court judgment ordering provisional measures in a damages case can be recognized and enforced in Latvia. The CJEU ruled that actions brought by undertakings seeking redress or compensation for damage resulting from alleged infringements of EU competition law, can be qualified as a ‘civil and commercial matter’, within the meaning of Article 1(1) of Regulation No 44/2001, and enforceable in Latvia under the provisions of the said regulation. Thus, the CJEU opened a wealth of opportunities for handball clubs (if the final decision in Germany is successful) to claim damages wherever they are based on the EU’s territory. Given that follow-on damages claims have a high success rate, the winning chances are high. Hence, since the common legal and factual features of each individual claim are observed, the class action would be an effective instrument to obtain redress, also adding to the deterrence goals.

Compensatory class actions: a powerful instrument to ensure better governance in sport (federations)?

If the German handball clubs bring a compensatory class action, it has the potential to become an important precedent for many other sports. One successful case may open a Pandora’s Box that would put a lot of pressure on the sports federations’ regulations.

By forming the group, claimants (such as handball clubs) are able to bundle individual claims and thus trigger efficiency gains by tackling common legal, factual and economic issues collectively.[9] As such, the defendants can handle the risks attached to private litigation and the probability of winning the case increases since multiple plaintiffs have larger financial means. Therefore, a group of claimants having larger financial means can employ more qualified lawyers and economic experts for antitrust cases. A package of collected claims from victims are easier introduced and defended before the court, meaning that damages are proved with sufficiently high probability and thus the chance of receiving compensation is high. When focussing on sanctions, class actions appear to deter abusive conduct, therefore strengthening good governance in sport. If all victims can sue a sports federation, the group will force the infringer to internalize the negative effects of the damage caused as close as possible to the full-compensation principle that is embedded in the EU reform on private enforcement.[10] Sport entities, knowing that class actions may be used against them and anticipating that the expected cost of the infringement may increase significantly, would think twice before violating the competition rules. The achievement of better governance would solve, or at least diminish, the problem of under-enforcement of EU competition rules in the sports sector. Even if the handball case does not result in an antitrust class action, victims from other sports should pay particular attention to such a fruitful litigation model.

[1] It was adopted Commission Recommendation of 11 June 2013 on common principles for collective redress mechanisms in the Member States for injunctions against and claims on damages caused by violations of EU rights, COM (2013) 3539/3, 11.6.2013 (‘Recommendation’).

[2] German Civil Code, Section 242 (“An obligor has a duty to perform according to the requirements of good faith, taking customary practice into consideration”).

[3] Recommendation COM (2013) 3539/3, sec. 19. In the area of injunctive relief, the European Parliament and the Council have already adopted Directive [2009/22/EC OJ L 110, 1.05.2009] on injunctions for the protection of consumers' interests

[4] GWB, sec. 33.

[5] Recommendation COM (2013) 3539/3, Sec 14-16.

[6] http://www.carteldamageclaims.com/portfolios/cdc-german-cement-cartel/. On 17 December 2013 the Regional Court of Düsseldorf dismissed the action in its entirety [Case No. 37 O 200/09]. CDC has appealed the judgment to the Higher Regional Court in Düsseldorf.

[7]See http://www.forumclubhandball.com/?p=707 and http://www.forumclubhandball.com/?p=707. The outcome had been reached after the negotiations with the FCH in 2010-2011.

[8] The IHF decided to pay compensation for the release of players to the 2011 and 2013 World Championships.

[9] Z. Juska, ‘Obstacles in European Competition Law Enforcement: A Potential Solution from Collective Redress’ (2014) 7 EJLS, 149.

[10] Directive of the European Parliament and of the Council on certain rules governing actions for damages under national law for infringements of the competition law provisions of the Member States and of the European Union’ COM (2013) 404 final, 11.6.2013

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Florentino Perez

Introduction

FIFA RWI

Case studies of the national implementation of the RWI in eight countries

Registration

Burdensome character

Lack of qualification assessment

Remuneration

Benchmark cons

Benchmark pros

Conflicts of interests

Minors

Duration of the Representation Contract

Harmonization at European level

FAs Partnership

UEFA

Conclusions

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