From a competition law perspective, sport is, in some ways, unlike other industries. It may be driven by ideals other than profit, such as sporting merit and fair play. It also only functions through collaboration: associations, leagues and clubs need to agree on fixture dates and kick-off times, amongst other things.
But sport also involves commercial entities which may have significant power over other economic actors, such as leagues, clubs, players or fans. In that respect, sport—and particularly sport governance—raises many of the same competition law issues as other industries. The EU Court of Justice’s judgment in the Diarra case (Case C-650/22 FIFA v BZ) last Friday marks another chapter in competition law’s attempts to find the right balance in regulating sport.
The full judgment is currently available in French and Polish. The Court’s summary in English is here.
Background
The case concerns former France, Chelsea and Real Madrid footballer, Lassana Diarra, who had challenged rules governing contractual relations between players and clubs. Mr Diarra joined Russian football club Lokomotiv Moscow only to seek to leave the club a year later following a salary cut. The club formally terminated his contract and applied to football governing body FIFA for compensation. FIFA upheld the club’s complaint and ordered Mr Diarra to pay the club €20 million (later reduced to €10.5 million), citing Mr Diarra’s conduct as amounting to contract termination without just cause.
Mr Diarra claims that his search for a new club proved difficult because, under FIFA’s Regulations on the Status and Transfer of Players (‘RSTP’), any new club would be held jointly and severally liable with Mr Diarra to pay Lokomotiv Moscow’s compensation and would be temporarily banned from signing any new players. Mr Diarra himself would be unable to play in any new country until the compensation was paid. He claims that a potential move to Belgian club Charleroi fell through as a result. He sued FIFA and URBSFA (the governing body for Belgian football) in Belgium for damages and loss of earnings of €6 million. The case was referred to the EU Court of Justice, which considered whether the rules at issue were compatible with the EU’s laws on free movement of workers and on competition.
As we wrote earlier this year, AG Szpunar had found in his non-binding opinion in April this year that FIFA’s RSTP were not compatible with these laws. Concerning competition law in particular, AG Szpunar advised the Court to hold that the RSTP had the object of restricting competition, on the basis that the rules led to a scenario where, as soon as a player terminated his contract without just cause, compensation must be paid and “severe” sporting sanctions kick in. He then found that the rules could not be justified by reference to the exemption under Article 101(3) TFEU.
The Court’s judgment
Last Friday, the Court of Justice in Diarra reached the same conclusion as AG Szpunar, finding that the rules in question in FIFA’s RSTP are contrary to EU law, as they breach EU rules on free movement of workers and competition.
Focusing on the findings on competition law, the Court found that the rules in question had the object of restricting competition: the rules result in a general, drastic, and permanent restriction of competition between clubs, who could otherwise compete by seeking to recruit players under contract. The FIFA rules that the Court focused on included: FIFA’s rules on the compensation the player needed to pay, which were found to be discretionary and unpredictable (paragraphs 134-135); the fact that any new club would be jointly and severally liable for that compensation, presumed to have incited the player terminating their previous contract, and banned from signing any new players for a period (paragraphs 137); and the fact the player was automatically deprived of playing for the new club (paragraph 139) or any new club in another country (paragraph 136).
The Court said these restrictions ensure, in practice, that each club is certain or near certain to retain its own players as long as the contract concluded with them has not reached its end (paragraph 141). In other words, FIFA’s rules prevent competition by restricting clubs from competing to recruit players while under contract. Such steps could not be justified by the specificities of football and football competitions (paragraphs 143-145).
The Court also rejected the argument that FIFA’s rules could be justified by reference to public interest considerations, such as contractual stability or the stability of professional football clubs. In doing so, the Court considered the principle used in the oft-cited cases, Wouters and Meca/Medina. In Wouters, the Court of Justice found that certain restrictions were justified by reference to avoiding conflicts of interest in the legal profession. In Meca-Medina, the Court used the same principle to absolve anti-doping rules. In Diarra, the Court found that public interest objectives could only be used to justify a restriction of competition by effect. It could not absolve restrictions by object, given the degree of harmfulness of such restrictions (paragraphs 149-152). In doing so, the Court found consistently with its judgments in Royal Antwerp and Superleague.
The Court’s approach to the Wouters/Meca-Medina principle is not uncontroversial. As Giorgio Monti and Stephen Weatherill have each commented, this creates a difference between the tests for analysing a restriction of competition by object under Article 101 TFEU (where public interest considerations cannot justify the restriction) and analysing that same restriction under Article 45 TFEU on free movement of workers (where the same considerations can justify the restriction). The Court seeks to justify this distinction by noting the two Articles pursue their own objectives, each providing their own conditions (paragraph 83). However, it does not concretely deal with the question why those different objectives justify different outcomes. Debate is likely to continue on whether this justification suffices.
Again, like AG Szpunar, the Court then found it unlikely that the restriction could be justified on the grounds of the Article 101(3) TFEU exemption for efficiency gains, because it considered the restrictions imposed were drastic and disproportionate (paragraphs 153-157).
Some commentators have expressed concern that the Court’s judgment may have far-reaching consequences for football’s transfer system. Players may no longer have an incentive to honour their contracts. If FIFA follows this judgment, players would not be restricted from playing for a new club after terminating their existing contract, and their new club would not be jointly and severally liable for penalties faced by the player. The Court did, however, note that its judgment does not affect the traditional contract law penalties that would apply to a player who breaches their contract, such as the right of the club to receive compensation from the player. Players may therefore still face severe penalties for breach of contract.
This case is the latest in which the Court of Justice has closely scrutinised the rules of football’s governing bodies. It follows the Court of Justice’s recent Superleague and Royal Antwerp judgments. In Superleague, the Court of Justice found that FIFA and UEFA abused their dominant position through their rules on approval of competitions. And in Royal Antwerp, the Court found that UEFA’s rules on homegrown players may unlawfully restrict clubs from competing with each other by recruiting talented players.
The Court of Justice’s judgment also fits into a broader context of recent antitrust focus on the rights of workers (including in this case very highly paid ones). In finding that FIFA’s rules restricted competition, the Court said that the rules correspond, in practice, to no-poaching agreements between clubs that result in artificially partitioning markets.
Competition authorities have also made employment issues (including no-poaching agreements) their focus. The European Commission and CMA have each recently published guidance on how competition law applies to no-poaching and wage fixing agreements. In the US, the FTC has also recently banned non-compete clauses in employment contracts.
What next?
Lassana Diarra’s case will now return to the Belgian courts for final determination in his dispute with FIFA.
This is now the second finding in less than a year that FIFA’s rules infringe EU competition rules (following the Superleague judgment in December last year). And new potential competition issues continue to arise in sports. A string of cases involving players’ agents are in progress (including Case C-209/23, RRC Sports in the ECJ). In the UK, the English Premier League is considering imposing a cap on players’ salaries. An arbitral tribunal determined last month that the Premier League’s rules on associated party transactions breach competition rules, following a challenge brought by Manchester City Football Club. The tribunal’s reasons were published yesterday.
What is increasingly clear with each judgment is that EU and UK competition law allows significant scrutiny of sporting rules. Professional sporting associations and their members should look carefully at their rules and regulations to ensure they remain within what is permissible under competition law.
Edit for full disclosure: After publication of this post, Geradin Partners was retained on a matter related to this case.
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