FIFA’s Third-Party Ownership (TPO)
ban entered into force on the 1 May 2015[1].
Since then, an academic and practitioner’s debate is raging over its compatibility with EU law,
and in particular the EU Free Movement rights and competition rules.
The European Commission, national
courts (and probably in the end the Court of Justice of the EU) and the Court
of Arbitration for Sport (CAS) will soon have to propose their interpretations
of the impact of EU law on FIFA’s TPO ban. Advised by the world-famous Bosman lawyer, Jean-Louis Dupont, Doyen
has decided to wage through a proxy (the Belgian club FC Seraing) a legal war
against the ban. The first skirmishes have already taken place in front of the
Brussels Court of first instance, which denied in July Seraing’s request for provisional
measures. For its part, FIFA has already sanctioned the club for closing a TPO deal
with Doyen, thus opening the way to an ultimate appeal to the CAS. In parallel,
the Spanish and Portuguese leagues have lodged a complaint with the European
Commission arguing that the FIFA ban is contrary to EU competition law. One
academic has already published an assessment of the compatibility of the ban
with EU law, and many practitioners have offered their take (see here and here for example). It is undeniable that the FIFA
ban is per se restrictive of the
economic freedoms of investors and can easily be constructed as a restriction
on free competition. Yet, the key and core question under an EU law analysis,
is not whether the ban is restrictive (any regulation inherently is), but
whether it is proportionate, in other words justified.
I will first present the key
arguments of the opponents of the ban, before offering my own assessment. As the
reader might know, I am no friends of FIFA and a staunch critic of its bad governance syndrome. Although I am convinced that FIFA’s
governance deserves a ground-up rebuilt, I also believe that FIFA’s TPO ban is
justified.
I.
Antithesis: FIFA’s TPO ban is
contrary to EU law
The legal waters are very much
chartered insofar as the question of the application of EU law to FIFA’s TPO
ban is concerned.[2]
The key legacy of the CJEU’s jurisprudence on sport, starting with the Bosman
ruling, is that
FIFA’s regulations do not escape the reach of EU law and that they must be subjected
to a proportionality control of the restrictions they impose on economic
freedoms. The fundamental question with respect to the TPO ban is then whether
it will be deemed justified and proportionate by the national courts, the CAS,
the European Commission and ultimately the CJEU.
The opponents of the FIFA ban
consider first and foremost that the practice of TPO (they usually prefer to
refer to as Third-Party Investments or Third-Party Entitlements) is a
legitimate financial investment practice, which is needed to sustain and raise
the competitiveness of certain clubs. Basically if banks are reluctant to
finance those clubs, then less risk-averse investors have to step in. Thus,
they support investment in the training capacity of the clubs (especially in South America) and their capacity to take their
chances in the most prestigious competitions (for example FC Porto or Atlético
Madrid). Hence, TPO can be seen as a legitimate investment practice and its
regulation left to the contractual freedom of the parties. Such a radical
libertarian view is not often supported nowadays,[3]
as the potential integrity risks of TPO are widely acknowledged.[4]
Instead, if the risks connected to
TPO are to be tackled, it is argued that TPO should be properly regulated. In EU
law jargon, this is labelled a less restrictive alternative.[5]
The existence of a less restrictive alternative would point at the
disproportionate nature of the FIFA ban. For example, a bundle of regulatory measures
are suggested
by the Spanish league (La Liga):
· Prohibition
of certain transactions based on the player's age;
· Maximum
percentage of participation in the "economic rights";
· Quantitative limitations on the maximum number of players per
club;
· Maximum
remuneration for the investor;
· Prohibition
of certain clauses that may limit the independence and autonomy of the clubs;
and
· Prohibition
of transactions depending on the investor's particular status or business (or participation in the same) such
as shareholders, directors and managers of the clubs.
The proposed regulatory changes would
undeniably be an improvement with regard to the current situation. However, I
do not believe they are sufficiently credible to undermine the legality of
FIFA’s TPO ban.
II.
Thesis: FIFA’s TPO ban is compatible
with EU law
A.
The necessity to tackle the integrity risks generated by TPO
First, we need to come back to the
function and functioning of TPO deals. There is a reason why banks refuse to offer
loans to certain clubs. They are often in difficult financial situations, their
revenues do not add up with their expenses. Investment funds fill this gap, they
replace banks in financially supporting these clubs. In return, they expect a
modern version of the “pound of flesh”, a share of the transfer fee attached to a
specific player. For a club, the TPO investments will only be fruitful while it
is successful on the pitch and lucky in picking the players it recruits. It is
a very risky bet on the future. In good times everybody wins, but in bad times
the club is in deep trouble (see FC Twente’s fate). The TPO system works as a devil’s circle,
the club is drawn into more and more TPO deals to stay financially viable.
Furthermore, TPO deals are not
unlike the complex financial instruments that led to the terrible financial
crisis of 2008. They give way to similar conflicts of interest. Where banks
were selling derivatives based on subprime mortgages to their clients while
betting against them at the same time, TPO funds might push their clients to
recruit (thanks to loans they have generously provided for high interests) a
mediocre player in which they already have a stake. Another option would be for
a TPO fund, which is often (if not always) also acting as an agent, to force
the departure of a player by triggering an offer which the club cannot refuse
(or it would have to buy back the rights which is impossible due to its
financial situation). The many hat(s) of TPO investment funds are extremely
worrying in terms of conflicts of interest.[6]
The most dangerous, though in my view less likely (but see the Tampere case), risk being that TPO investors would use
their broad networks of influence to fix games. FIFA’s objective of curbing
those risks is clearly a legitimate one.
The heart of the trade of TPO funds
is to leverage the hubris of football clubs, to corner them into making a bad
financial deal in return for a credible shot at winning a title. But once the
high is over, the low starts and the awakening is rather uncomfortable. The
high financial risks saddled to the club are sustainable only so long as it is
a winner. As soon as its fate on the pitch turns, the bad news accumulates and
not unlike a bank run the club crashes, while the investors have more often
than not managed to escape before the fall. In short, unless you truly believe
in the superpowers of the invisible hand of the market, this practice, as well
as the financial practices that led to the financial crisis, deserves either a
thorough regulation or an outright ban.
B.
Is there a realistic regulatory alternative to the ban?
The key question for the assessment
of the TPO ban under EU law is whether the many negative externalities
triggered by the use of TPO could be tackled by the way of a less restrictive
encroachment on the economic freedoms of the investors/clubs than the FIFA ban.
Critics of the ban have very much insisted on the existence of less restrictive
regulatory alternatives and put forward some proposals. Yet, I am of the
opinion that these alternatives are generally unworkable in the present context.
The main reason being that FIFA is incapable to properly regulate and control
the TPO investment market. This is due to the fact that FIFA does not dispose
of the legal competence needed to force investment funds to disclose
information. To do so, it must be empowered by governments to be able to cease
the information wanted, which is unlikely. Some would object, that this could
be done via the FIFA TMS system put in place to supervise international
transfers. But it would be extremely difficult for FIFA to verify any complex
set of contractual information entered into the TMS. The destiny of former
article 18 bis of the FIFA Regulations on the Status and Transfers of Players
(see the 2014 version here) is there to prove this point. Under article
4.2 of Annexe 3 of the FIFA RSTP 2014, Clubs were already supposed to provide a
“Declaration on third-party payments and influence”. Nonetheless, in previous
years, FIFA was unable to charge any club (except for Tampere in a match-fixing
context and due to a local police investigation) on the ground that an investor
was exercising undue influence, mainly because it lacked the knowledge needed
to do so. This is exemplified in the case of the ERPA signed by Doyen and FC
Twente, which was only partially disclosed to the Dutch Football Association.
If FIFA is powerless, how is it supposed
to enforce the ban? Well here lies the crucial difference between a ban and complex
regulation. A ban is simpler to enforce, as it is merely a black-or-white
matter. FIFA will be able to rely on investigative journalists unearthing investment
contracts linked to transfers. The mere existence of a TPO contract will lead
to a dissuasive sanction, without the need to get into the nitty-gritty details
of each case. It thus makes it easier for FIFA to control the use of TPO and to
force investment funds to come out in the open and take charge of the
management of a club if they wish to stay active on the transfer market. The
higher probability of being caught linked to the use of TPO will most likely
work as a strong deterrent for clubs to engage in such a financing practice. This
is undeniably a blunt instrument, and in an ideal world a true regulation of
the TPO market would be put in place and enforced, but this ideal world is not compatible
with the pluralist and complex transnational legal setting in which the transfer
system operates. The complex regulatory schemes proposed as substitute to the
ban are very well intended, but they do not take into account the extreme
difficulty (and costs) linked to their implementation. The fiasco of the old FIFA
Players’ Agents Regulations illustrates the practical constraints that burden
any regulation of the football transfer market.
C.
TPO is not compatible with the 2001 agreement between the European
Commission and FIFA
There is a final argument in favour
of the compatibility of the TPO ban with EU law, which is grounded in the 2001 agreement between FIFA, UEFA and the
European Commission.
As should be obvious by now, the existence of TPO is dependent on the existence
of the FIFA transfer system. Such a transfer system is unknown in other
industries (though one could very well imagine a transfer system for academics
for example). In turn, the FIFA transfer system restricts the economic freedom
of both clubs and players. The European Commission highlighted these
restrictions during its investigation of the FIFA transfer system in the early
2000s. However, the Commission signed an agreement with FIFA and UEFA
signalizing its support for a new (the current) FIFA transfer system in 2001
and put an end to its investigation. This support was conditioned on
the idea that a form of transfer system was needed to maintain the contractual
stability necessary to the existence of stable and successful teams.[7]
This is the fundamental assumption that underlies the compatibility with EU law
of the FIFA transfer system, and therefore the sheer existence of TPO. Yet, TPO
as a practice is per se promoting
contractual instability. Players have to change clubs for TPO investors to cash
in on their investments. It is perfectly logical for TPO contracts to include
various clauses strongly incentivizing clubs to sell their players. If not,
they will have to bear the costs, for example, of paying a fee (usually the
invested amount plus a healthy interest) in case the player leaves the club on
a free transfer, or forcing the club to buy back at market rate the investors’
shares in the economic right of a player in case of an offer above a minimum price.
For a cash-strapped club, e.g. a club that lost access to the banking system
and has to turn to TPO investors, this is usually impossible and means that it
will be forced to sell-on the player. In a way, TPO is a radical perversion of
the deal stroke by FIFA/UEFA and the Commission. The transfer system was meant
to ensure that contractual stability is secured in football, not to enhance
contractual instability. This contradiction between TPO and the rationale
conditioning the legality under EU law of the FIFA transfer system will
necessarily bear on the EU Commission’s analysis of FIFA’s TPO ban.
Conclusion: TPO is a
symptom, the transfer system is the problem
20 years of the Bosman case oblige, the
case has been back in the news cycle this week (see here, here, and here). It is widely credited, or rather blamed, for
having changed football for bad, turning it into some kind of commercial
monster. I very much doubt this storytelling is right. It is based on a
collective misreading of the case. Bosman
took stock of a contemporary development in football at that time: the
eagerness of the “football family” to commercialize its activities by primarily
selling TV rights in a monopoly position. What Bosman is about, then, it is the regulation of this economic activity.
Central questions are: How should the proceeds be distributed and especially
who should bear the costs of ensuring competitive balance amongst the teams?
Until Bosman the players were the main
losers, they could not move freely across Europe and in some countries they
could not transfer for free even after the end of their contracts. This situation
was deemed an unjustified restriction on the player’s freedom by the Court. Nevertheless,
and this is widely forgotten, Bosman
is not about dogmatically ensuring that economic freedoms and a deregulated
market always prevail. In fact, Advocate General Lenz was advocating as an alternative to the transfer
system that the economic revenues derived from TV rights be shared more equally
to ensure competitive balance.[8]
This is obviously an important restriction on the economic freedom of clubs and
leagues, yet the Court endorsed it as viable alternative.[9]
Since then, the Court has repeatedly approved various type of sporting
regulations restricting the economic freedoms of athletes or clubs.[10]
After Bosman, FIFA and UEFA
(supported by many clubs) insisted on maintaining a transfer system instead of
the alternative suggested by Lenz and the Court. Despite the Commission’s
aforementioned challenge of the legality of the FIFA transfer system, FIFA and
UEFA were able to marshal the political support of the most influential Member
States (France, Germany and the UK) in their bid to save the transfer system.[11]
This led to the 2001 agreement and to the survival of the transfer system in
its current form.
It is certainly ironical that the
transfer system is based on the same legal principles denounced by UEFA and
FIFA officials when they talk of slavery regarding TPO. This hypocrisy, rightly pointed
out by the critics of the ban,[12]
does not entail that the TPO ban is contrary to EU law, as they in turn seem to
assume. However, it does imply that TPO as a practice is just the tip of the
iceberg. In fact, it is a symptom, as well as the murky world of agents, of a
global transfer market gone rogue. This is due mainly to the insistence of FIFA
in transforming players into moveable assets included on the balance sheets of
clubs. The transfer system is certainly not about contractual stability or the
financing of training facilities. Indeed, FIFA is trumpeting the growing number
of transfers each year (see this year’s celebratory press release here) and is very much dragging its feet as far as
enforcing training compensations and solidarity payments is concerned.[13]
Undoubtedly, there is some doublespeak going on. If clubs are forced to turn to
TPO investors it is mainly because FIFA and UEFA (and the big clubs) have
refused to put in place the necessary redistributive mechanisms to ensure a
minimum of competitive balance as was advocated by the CJEU in the Bosman ruling 20 years ago (and by the
EU Commission recently). Instead, they have put their faith into a
transfer system that is neither correcting competitive imbalances nor
guaranteeing contractual stability (a view supported by Stefan Szymanski on behalf of
FIFPro). FIFA has lost control over its Frankenstein-like transfer system and it
is desperately trying to rein its negative externalities with regulatory
patches (e.g. UEFA’s Financial Fair-play Rules or FIFA’s TPO ban). In this regard,
the TPO ban is unlikely to contravene EU law, but it is also unlikely to be a solution to the many problems caused by FIFA
and UEFA’s handling of the post-Bosman
football era.