On a more positive note, clubs will be pleased that the RSTP rules imposing automatic joint and several liability on clubs taking on players that had breached their previous contract will (more likely than not) need to be changed. More likely than not, the updated RSTP rules will still cater for joint and several liability where a new club has induced a player to terminate their contract early – but the automatic nature of such a rule will be omitted.
FIFA V DIARRA
The CJEU decision was handed down on 4 October 2024. The case was brought by Lassana Diarra (“Diarra”), a former professional football player.
In order to understand Diarra’s case the following RSTP rules need to be born in mind:
- Article 17(2) RSTP provides that one of the consequences of a breach of contract without just cause is that “… If a professional player is required to pay compensation, the professional player and his new club shall be jointly and severally liable for payment thereof…”.
- Per Article 9 RSTP “[a] player registered with an association may only be registered with a new association when the latter has received an ITC issued by the former association …”. However, this article must be read together with Article 8.2.7 of Annex 3 to the RSTP, which provides (amongst other things) that “[t]he former association shall not issue an ITC if the former club and the professional player are involved in a contractual dispute [where the contract between the former club and the professional player has not expired or there has been no mutual agreement regarding the early termination of the contract] …”
Diarra signed with Russian football club Lokomotiv Moscow in 2013, but after one year the club terminated the contract due to alleged contractual breaches and filed a claim for compensation before FIFA’s Dispute Resolution Chamber (“DRC”). (The DRC ultimately found, in May 2015, that Diarra was liable to pay Lokomotiv Moscow €10,5 million in compensation.)
After the contract was terminated in 2013, Diarra had difficulties in finding a new club that would hire him because of the risk that any such club would be jointly and severally liable for the payment of the compensation that might be payable to Lokomotiv Moscow (per Article 17(2) RSTP).
On 19 February 2015, Diarra received an offer from Royal Charleroi (a Belgian first division club). However, the offer was made under two conditions:
- Diarra could be registered and play in the club’s first team in all FIFA, UEFA, and Belgian Football Association organised competitions; and
- the club received written and unconditional confirmation that it could not be held jointly and severally liable for the payment of any compensation that Diarra might possibly owe to Lokomotiv Moscow.
On 20 February 2015, Diarra wrote to FIFA and Belgian Football Association in order to obtain the assurance required by Royal Charleroi. FIFA responded that only its competent decision-making body had the power to apply the RSTP; and the Belgian Football Association replied that, in accordance with the rules laid down by FIFA, Diarra’s registration could not take place until an International Transfer Certificate (“ITC”) had been issued.
Diarra was unable to take up the contract with Royal Charleroi and he therefore, in December 2015, brought a claim against FIFA and the Belgian Football Association for €6 million as compensation for the loss incurred due to the two associations’ decisions. The claim was upheld by the Commercial Court of Hainaut (Charleroi division) (Belgium). FIFA then appealed that judgment to the Mons Court of Appeal (Belgium), which the referred the matter to the Court of Justice of the European Union (“CJEU”).
The CJEU held that, as rules adopted by sports federations generally fall within the scope of EU law, the relevant RSTP rules fall within the scope of application of Articles 45 (freedom of movement for workers) and 101 (prohibition of restrictive agreements) of the Treaty on the Functioning of the European Union (“TFEU”). [paragraphs 80-82]
Articles 45 TFEU
The CJEU found that certain aspects of the RSTP rules were incompatible with the guarantee of freedom of movement under Article 45 TFEU [paragraph 113]. The basis for this was that “the existence of these rules and their combination have the consequence of imposing on these clubs’ significant legal risks, unpredictable and potentially very high financial risks as well as major sporting risks, which, taken together, are clearly such as to dissuade them from hiring such player” [paragraph 92].
It will ultimately be for the Belgian courts to determine whether aspects of the RSTP rules dealt with below can be justified; however, the CJEU was in a position (in light of the evidence in the file before it) to give its view on certain points. [paragraph 97]
The objective of the RSTP is to maintain a certain degree of stability in the composition of teams and continuity of contracts, and the CJEU noted that this was a possible means of ensuring regularity of interclub football competitions (which is a legitimate objective) – however, according to the CJEU, the RSTP appeared to go beyond what was necessary to achieve that objective. [paragraph 102]
The CJEU was concerned that the criteria contained in Article 17(1) RSTP were unclear / vague and did not sufficiently take into account the domestic law governing the contract in determining the level of compensation due. The criteria also factored in matters outside the control of the player and elements that post-dated the conclusion of the original contract. [paragraphs 106-107]
Regarding Article 17(2), the key issue was the automatic joint and several liability of the new club, without any consideration of the specific facts. The CJEU considered that the presumption contained in Article 17(4) RSTP (that the new club induced the player to terminate the contract early), leading to severe sporting sanctions, appeared to be “manifestly devoid of any relationship of proportionality with the breach attributed to the new club concerned”. [paragraph 108-110]
Finally, The CJEU noted that Article 8.2.7 of Annex 3 to the RSTP, providing that the former association is prohibited from issuing an ICT in cases where the player and the former club are involved in a relating to a breach of contract possibly without just cause, “manifestly disregards the principle of proportionality, in particular in that its application ignores the circumstances specific to each individual case, in particular the factual context in which the breach of contract occurred, the respective conduct of the player concerned and his former club and the role or lack of role played by the new club, which is ultimately subject to the ban on registering that player and fielding him in competitions”. [paragraph 112]
Therefore, unless the aspects of the RSTP rules dealt with above can be justified as not going beyond what is necessary in order to pursue the objective of ensuring the regularity of club football competitions (while maintaining a certain degree of stability in the membership of professional football clubs) they are precluded by Article 45 TFEU. [paragraph 113]
Article 101 TFEU
The CJEU also found that certain aspects of the RSTP rules were incompatible with the guarantee of freedom of movement under Article 101(1) TFEU. It will however be for the Belgian courts to determine whether the conditions contained in Article 101(3) TFEU have been met and whether there is therefore an exemption from the prohibition set down in Article 101(1) TFEU. [paragraph 157-158]
The CJEU noted that, in principle, it is it is legitimate for an association such as FIFA to subject the organisation and running of international competitions to common rules intended to ensure the homogeneity and coordination of those competitions within an overall annual or seasonal calendar and, more broadly, to promote, in an adequate and effective manner, the holding of sporting competitions based on equal opportunities and merit. [paragraph 143]
The CJEU also noted that it was legitimate, to a certain extent, for FIFA to ensure the stability of the composition of the squads of players by (for example) prohibiting the unilateral termination of employment contracts during the season, or even during a given year. [paragraph 144]
However, even the specific features of football and its market conditions do not permit a “generalised, drastic and permanent restriction, or even a prevention, throughout the entire territory of the European Union, of any possibility for clubs to engage in cross-border competition by unilaterally recruiting players already engaged by a club established in another Member State or players whose employment contract with such a club is allegedly terminated without just cause”. [paragraph 145]
For the reasons set out below, the CJEU was of the view that certain aspects of the RSTP went too far and were inconsistent with Article 101(1) TFEU.
- Unless the former club agrees to a negotiated transfer, the mere fact of hiring such a player exposes the new club to the risk of being held jointly and severally liable for the payment of compensation of a potentially very significant amount (Article 17(2) RSTP).
- The amount of this compensation is highly unpredictable for the new club given the nature of the criteria on the basis of which it is calculated (Article 17(1) RSTP).
- As long as there was a dispute between the player concerned and his former club regarding the early termination of the employment contract and therefore as long as the ITC corresponding to this hiring has not been issued, this player could neither be registered with this new club nor participate, on its behalf, in certain competitions (Article 8.2.7 of Annex 3).
- The new club risks a severe sporting sanction in the event that it fails to overturn the presumption of incitement to breach the contract (Article 17(4) RSTP). [paragraph 139]
Further, this generalised and drastic restriction of cross-border competition between clubs through the unilateral recruitment of players already signed with a club extended (from a geographical point of view) to the entire territory of the EU; and (in temporal terms) was permanent in that it covered the entire duration of each of the employment contracts that a player may conclude successively with a club. [paragraph 140]
It is trite that not every agreement between undertakings or decision by an association of undertakings which restricts the freedom of action of the undertakings which are parties to that agreement or are subject to compliance with that decision necessarily falls within the prohibition laid down in Article 101(1) TFEU. It may be that they are justified by the pursuit of legitimate objectives, and the specific means used to pursue those objectives are genuinely necessary for that purpose and do not go beyond what is necessary.
The CJEU found that the ‘object’ of the specific aspects of the RSTP was to prevent, restrict or distort competition rather than the inherent ‘effect’ of restricting competition by limiting the freedom of action of certain undertakings. As such aspects could not be justified. Therefore the only exemption from the prohibition set down in Article 101(1) TFEU would be through the conditions detailed in Article 101(3) TFEU. [paragraph 150]
The CJEU was of the view that the specific aspects of the RSTP may not meet the conditions detailed in Article 101(3) because of: i) the discretionary and/or disproportionate nature of certain rules; and ii) the fact that certain rules provided for a generalised, drastic and permanent restriction of cross-border competition which professional football clubs could engage in by unilaterally recruiting high-level players. It will however be for the Belgian courts to determine whether the conditions have been met. [paragraph 157]
Because the Belgian courts need to assess whether the specific aspects of the RSTP can be justified and whether the conditions contained in Article 101(3) TFEU are met, there could still be surprises that come from this litigation.
MAN CITY V PREMIER LEAGUE
The APT Rules were introduced in December 2021, replacing the previous profit and sustainability rules. Following a review of the existing APT Rules and Fair Market Value (“FMV”) assessment protocols, the Premier League put forward a series of amendments to enhance the efficiency and accuracy of the system.
In February 2024, the Premier League clubs voted to approve the amended APT Rules (twelve clubs voted to change the rules and six (including Man City) voted against the changes, with two abstaining). Man City launched a legal action against the Premier League in an attempt to end the league’s APT rules and claim damages for perceived losses from sponsorship deals that were halted by the rules.
On 7 October 2024 the Tribunal handed down its decision (available on the Premier League website). The decision details the background to the adoption of the APT rules and their subsequent amendment at paragraphs 12 to 151. It then proceeds to deal with Man City’s challenges to the APT Rules and the amendments made in February 2024. Although the Tribunal found that two aspects of the APT Rules were unlawful (dealt with below); crucially, Man City’s attempt to overhaul the APT rules failed.
Regarding the parts of the APT Rules that were found to be unlawful, the Tribunal held that shareholder loans should not be excluded from the scope of the APT rules. This finding will, in my view, have the biggest impact going forward.
One of the matters raised by Man City was that the exclusion of shareholder loans from the APT regime was an object restriction. Man City contended that such loans were obviously APTs as they came from a shareholder and such loans were obviously not at FMV because a non-interest bearing loan or a low interest bearing loan or a non-repayable loan was plainly not at FMV. Man City therefore asserted that such an exclusion was discriminatory, distortive, and/or had a differential impact on different clubs.
The Premier League’s case was that the shareholder exclusion permitted transparent investment by owners in clubs, was not discriminatory as it applied equally to all clubs and treated shareholder loans and equity investment in the same way. Further, it was to be distinguished from sponsorship agreements with APTs that may contain a concealed subsidy.
Ultimately, the Tribunal held that shareholder loans should not be excluded from the scope of the APT rules. The Tribunal’s detailed reasoning is set out at paragraphs 241 to 264; however, broadly speaking, the basis for its conclusion was that the exclusion of shareholder loans from the APT Rules distorted competition in permitting one form of subsidy (namely a non-commercial loan) but not another (namely a non-commercial sponsorship agreement). The Tribunal held that, having regard to the purpose of the profit and sustainability rules, a subsidy via a non-commercial loan is just as damaging to the effectiveness of the profit and sustainability rules and to competition between clubs as a subsidy via an inflated sponsorship agreement. It distorts competition.
The Tribunal also found that some of the amendments made in February 2024 should not be retained were unlawful, specifically:
- changes to the definition of FMV;
- changes to the threshold for Board intervention in a FMV assessment; and
- the shifting the burden of proof to a club to show a transaction is at FMV.
The details of why the amendments made in February 2024 were unlawful can be found at paragraphs 274 to 291.
Regarding the procedural fairness of the APT Rules, the only assertion of unfairness that was upheld was Man City’s inability to comment upon the comparable transaction data relied upon by the Premier League before the Premier League determined whether a transaction is at FMV (paragraphs 398 to 412).
Lastly, the Tribunal found that the Premier League had taken too long to make a decision on some of the values of Man City’s sponsors and that there was therefore a breach of rule E.64 (paragraphs 577 to 584; and 585 to 591).
Therefore, although there was a successful challenge to parts of the APT Rules, the Tribunal endorsed the overall objectives, framework and decision-making of the APT system. We will need to see how the Premier League proceeds to amend the APT rules in light of the decision – but the system as a whole will remain.
