Is this the end of football’s transfer system? An immediate reaction to the Court’s ruling in Diarra (C-650/22).

 

Stephen Weatherill, Somerville College and Faculty of Law, Oxford University

Photo credit: Addesolen, via Wikimedia Commons

 

Introduction

 

‘Is this the end of football’s transfer system?’ So shrieked the media in December 1995 when the Court of Justice decided the Bosman case (C-415/93). And the same question has now hit the headlines after the Court’s ruling on 4 October 2024 in Diarra (C-650/22). The answer was ‘no’ back in 1995. And the answer is still ‘no’ today.

 

The transfer system which enmeshed Diarra and led to the litigation is exposed by the Court’s judgment on 4 October as grossly deficient and incompatible with EU law. It will need to be changed. But a system of sorts, specific to football, can survive this judgment. And it is unlikely anything will happen quickly. It took several years after the Bosman ruling for the system to be revised, and Bosman was clearer on what needed to be changed – the exclusion of out-of-contract players - than Diarra is. But there will need to be change. Most of all, the system will need to be made less restrictive and the consequences of unilateral breach of contract will need to be made more predictable.

 

The litigation

 

Diarra played for Lokomotiv Moscow. A dispute arose. The club terminated his contract for reasons related to his conduct and brought a claim for compensation before the Dispute Resolution Chamber under FIFA’s Regulations on the Status and Transfer of Players. The player counterclaimed. In the meantime he tried to find a new club. Diarra’s claim which reached the Court in Luxembourg via a reference from the cour d’appel de Mons in Belgium concerns his failure to find a new club. Under the FIFA Regulations it was possible that the dispute with his old club might, once finally resolved, have resulted in any new club being liable alongside Diarra to pay compensation to Lokomotiv Moscow under the FIFA Regulations. So, Diarra claimed, the transfer system obstructed his chances of finding new employment. This, he also claimed, was not hypothetical. His evidence included a concrete (and remarkably convenient) offer from Charleroi which was stated to be subject to that club not being liable under the FIFA Regulations – a proviso which FIFA refused to accept. So Diarra’s case was that he had been treated by FIFA in breach of EU law – that the transfer system operated as an obstacle to his free movement in violation of Article 45 TFEU and as an anti-competitive practice incompatible with Article 101 TFEU.

 

 

The structure of the ruling

 

Much of the Diarra ruling is entirely familiar and unsurprising to an EU internal market lawyer.

 

An obstacle to inter-State trade within the meaning of Article 45 TFEU (on the free movement of workers) was found. FIFA’s rules, the Court concluded, were liable to obstruct football players resident or working in their Member State of origin who wish to work instead for a new club established in the territory of another Member State by unilaterally terminating their employment contract.

 

Similarly the presence of the key ingredients of Article 101 TFEU (on competition law cartels) were quickly ticked off – FIFA falls within the concept of an undertaking or association of undertakings, its rules were a 'decision by an association of undertakings', and the matter affected trade between Member States.

 

The sports-specific elements in the ruling are also no surprise. The Court follows the model of its December 2023 ruling in the European Superleague case (Case C-333/21), which is cited on 35 different occasions, and this is plainly now the established model for the several cases concerning the regulation of sport which are pending before it. So the Court repeats its (silly and plain wrong) observation that certain specific rules such as those relating to the exclusion of foreign players from the composition of teams participating in competitions between national teams or to the setting of the ranking criteria used to select athletes participating in competitions which were adopted exclusively for reasons of a non-economic nature and relate to matters relating solely to sport as such must be regarded as being unrelated to any economic activity, and so untouched by EU law. But no harm is done because in Diarra the Court quickly dismisses the notion that the transfer system is ‘unrelated to any economic activity’, just as in the Superleague case it had correctly refused to accept that UEFA’s rules on prior approval of new competitions were extraneous to economic activity – and just as it should also appreciate that rules on the composition of national teams and ranking criteria have direct economic impact. EU law applies – the key issue is not using some spurious ‘non-economic’ label to exclude EU law but rather how EU law applies to practices with both sporting and economic motivations and effects.

 

Paragraphs 124-133 address ‘The concept of conduct having as its “object” or “effect” the harm to competition’. Nothing here will surprise anyone familiar with Superleague. If conduct is found to have an anti-competitive object, it is not necessary to examine its effect on competition; the concept of anticompetitive 'object' must be interpreted strictly; it catches only practices which reveal a sufficient degree of harm to competition for it to be possible to consider that an examination of their effects is not necessary (and some such practices are itemised); subjective intention is not decisive; one must examine the content, the economic and legal context and the aims. Familiar fare from Superleague. Moreover, and confirming the revolutionary turn taken by the Court in Superleague, a practice may be excluded from the scope of Article 101(1) where justified by the pursuit of, and necessary to achieve, legitimate objectives in the public interest – but only where the practice exerts an anti-competitive effect, not where it pursues an anti-competitive object. In the latter case only Article 101(3) may save the practice (paras 149-152). The decision in Meca-Medina (Case C-519/04P), which envisaged (in short) a public interest/ legitimate objective exclusion from the scope of Article 101(1) irrespective of whether the challenged practice was a restriction on competition by object or by effect, is banished – so much so that the case is not even cited in Diarra.

 

 

The incompatibility of the challenged transfer system with EU law

 

The flaws in the transfer system, on paper and in practice, are brutally listed by the Court. This leads it to the finding that they violate both Article 45 and Article 101.

 

The Court does not deny that FIFA has a legitimate role a regulator. In interpreting Article 45 it notes that the rules may be appropriate as a means to achieve the objective of ensuring the regularity of club football competitions and by contributing to maintaining a certain degree of stability in the membership of the football clubs likely to participate in those competitions (para 103). In similar vein, in examining Article 101, it refers to the conditions under which professional football clubs may compose the teams participating in such competitions and those in which the players themselves may take part in them (para 143). It may be legitimate for FIFA to seek to ensure the stability of the composition of the squads of players during a given season, for example by prohibiting – as the FIFA Regulations do - the unilateral termination of employment contracts during the season (para 144).

 

But the Court’s detailed assessment is damning.

 

Paragraphs 103-113 deal with compliance with the principle of proportionality in the interpretation of Article 45. The Court does not mince its words. The rules appear to go in several respects beyond, and in some cases far beyond, what is necessary to attain their objectives. They apply to players who have a relatively short career and therefore the impact with typically be great. Compensation is payable by the player in the event of unilateral termination of the employment contract 'without just cause', but that expression is not precisely defined in the Regulations. Some criteria are, as the Court (rather gleefully, I suspect) notes is admitted even in the official FIFA commentary, almost never applied in practice, whereas others (such as the specificity of sport) have no precise definition. This leads to discretionary and unpredictable implementation. Absence of the necessary legal certainty is a central problem. Other criteria, though more objective and verifiable, seem to go far beyond what is necessary. This is especially so in relation to taking into account remuneration and costs in calculating compensation due. The criteria governing compensation – the Court notes drily – seem more attuned to preserving the financial interests of clubs than to ensure the effective organisation of sporting competitions. The ‘sporting sanction’ imposed on the new club, which operates on the basis of a presumption of incitement, appears far removed from the demands of proportionality. The same is true of the impact on the player.

 

It is a sorry list of inadequacies. And it leads the Court to conclude that the proper conduct of sporting competitions cannot provide a justification. The current transfer system violates Article 45.

 

The examination conducted pursuant to Article 101 has much in common with that presented in connection with Article 45. The analysis begins at paragraph 134. The Court notes – in line with its earlier remarks in the light of Article 45 - that the rules are general and imprecise and that they are subject to discretionary implementation which is unpredictable and difficult to control. So too they appear to allow compensation to be set at a very high and dissuasive level.

 

Paragraph 138 draws on the Opinion of Advocate General Szpunar, which itself was a savage indictment of FIFA’s rules. It declares that the transfer system acts as a general and severe restriction on competition between professional football clubs in the market for recruitment of players. The system amounts to a ‘no-poaching’ agreement between clubs which results in the artificial partitioning of national and local markets, which – crucially - is to the benefit of football clubs (para 145). This acts as a general, absolute and permanent prohibition on the unilateral recruitment of players who are already engaged, which the Court treats as a clear restriction on competition between clubs (para 146).

 

This, then, is as ruthless as it is damning. As already in its treatment of Article 45 the Court portrays the transfer system in its current iteration as a means to improve the economic position of clubs at the expense of workers. Given the negligible input into its shaping allowed to workers’ representatives, this comes as little surprise. 

 

The conclusion is therefore that the system counts as a restriction of competition by object. As such, as explained at paragraphs 149-152 and as decided in Superleague, it cannot be saved by reference to the general public interest/ legitimate objective test applied to sport in Meca-Medina, although the Court cites only Superleague and Em akaunt BG (C-438/22), not Meca-Medina. That in turn means that only Article 101(3) can save FIFA’s rules. But the Court’s treatment of Article 101(3) at paragraphs 153-157 is as brusque as it is brisk. The ultimate decision belongs with the national court, but the Court gives a strong steer that the discretionary and/or disproportionate nature of the rules and their severe restriction on cross-border competition between clubs means they cannot be regarded as indispensable or necessary to achieve economic benefit, even were any such benefit shown.

 

 

The legitimate role of FIFA

 

The Court’s ruling treats the transfer system as rotten. But there is plenty in the Court’s judgment for FIFA to be pleased about.

 

The Court’s interpretation of both Article 45 and Article 101 allows for recognition of a legitimate regulatory role performed by FIFA in adopting common rules to regulate sport, and provide some detail on how far this may reach. Paragraphs 100-103, dealing with Article 45 and paragraphs 143-144, dealing with Article 101, contain a receptivity to FIFA’s regulatory aspirations on which FIFA (and other governing bodies) are likely to rely in framing defence of their practices in future.

 

The objective of ensuring the regularity of sporting competitions constitutes a legitimate objective in the public interest which may be pursued by a governing body. Making the organisation and conduct of international competitions subject to common rules intended to guarantee the homogeneity and coordination of those competitions within an overall annual or seasonal calendar is recognised as legitimate. So too the protection of the essential role played by equal opportunities and sporting merit in the conduct of competitions organised at both European and national level; and ensuring teams compete against each other under homogeneous regulatory and technical conditions.

 

These paragraphs of the judgment also reflect specifically on how these common rules shall affect players. The Court accepts that rules are needed to regulate the composition of teams participating in competitions; that there may be rules relating to the time limits for transfers of players during the competition; that there may be rules intended to ensure the maintenance of a certain degree of stability in the squads of clubs, which also entails concern for the continuity of related contracts; rules setting deadlines for player transfers in order to avoid transfers at a late stage of the season which would damage the overall integrity of the competition. Paragraph 144 seems open to prohibiting - as the current Regulations do -the unilateral termination of employment contracts during the season or even in a given year. These interventions, the Court accepts, serve as means to contribute to the pursuit of the legitimate objective of ensuring the regularity of club football competitions.

 

So this is to recognise the need for regulation of the sport generally and regulation of the place of players within it in particular. It is to recognise the place of a governing body in doing so. Presumably these activities, then, fall within the scope of the legitimate regulatory role performed by a governing body, and they are not a practice which has the object of restricting competition. This echoes Superleague. In that ruling UEFA’s detailed procedures on prior approval were condemned as non-transparent, lacking objective criteria and discriminatory – much as FIFA’s transfer system fell apart under scrutiny in Diarra. But in Superleague the Court did not direct that the market for supply of sporting competitions shall become a free-for-all. Quite the reverse. It accepted that a prior authorisation system may be used to refuse a competition which is not based on sporting merit. It seems that the object of requiring that new competitions be open and based on sporting merit is not to restrict competition but rather ‘the pursuit of legitimate objectives, such as ensuring observance of the principles, values and rules of the game underpinning professional football’ (ESL para 176, and see analyses here and here). Superleague provides opportunities for UEFA to re-define its regulatory purposes in defence of the values of the game – provided it meets the required standards of transparency, objectivity and non-discrimination. Similarly Diarra challenges FIFA to pin down with more care how and why rules governing the consequences of unilateral termination of contract are necessary to protect the integrity of sporting competition, and to devise rules that genuinely do so.

 

 

Revising the rules

 

It seems clear that FIFA’s rules on transfers must be made less restrictive and more predictable than they are now. The difference between the status of a player out of contract and a player still in contract will need to be reduced, but I do not think it will need to be eliminated.  The Court leaves room for FIFA to adopt common rules which are necessary to sustain the integrity and regularity of sporting competition. It seems clear from paragraphs 100-103, dealing with Article 45, and paragraphs 143-144, dealing with Article 101, that the Court is not condemning the very idea that sport needs common rules, operating independently of local contract and labour law, which are designed to protect the sport’s functioning and which may have an impact on a player who commits a unilateral breach of contract. The transfer window will survive, even though it plainly exerts some deterrent effect on clubs’ willingness to act in the market for players. I think it remains open to FIFA to devise a system that will maintain some degree of control over the eligibility of the player who commits a unilateral breach of contract. I think FIFA could provide that a player will not be able to quit one club and insist on being available to play for a new club immediately, even if local law permitted that. How long would the player have to wait? – well, that remains to be decided as the FIFA rules come to be revised. In this sense footballers will still not be treated in exactly the same way as plumbers, sausage-makers and University teachers – they will be subject to special rules applied within their industry in addition to applicable local contract and labour law. In some parts of the judgment, especially paragraph 145, the Court seems to assume that clubs can be adequately protected from the harm flowing from a breach of contract through the application of contract and employment law, and that may be so, but there is also the wider interest in the integrity of the sporting competition to take into account. It would be damaging to sporting integrity if the local law entitled the player immediately to take up employment with a new club. It would be especially damaging in a transnational competition if different laws applied in different states, as they doubtless would. So there must be room also for FIFA, as the transnational regulator of the sport, to address the phenomenon of unilateral breach of contract. But – how? There is a tension – when does action taken against a player who has committed a unilateral breach of contract cross the line from a (lawful) scheme designed to protect the integrity of sporting competition to an (unlawful) attempt to use regulatory power to extract advantage to the clubs at the expense of the player? FIFA’s job will be to show when and why such rules are needed given the special demands of sporting competition. None of this is easy, and it will take time, but paragraphs 100-103 and 143-144 of Diarra are a goldmine for FIFA.

 

A major objection which runs through the ruling is directed at the discretionary case-by-case evaluation of the consequences of unilateral breach of contract. The Court in Diarra notes that a system, if shown to be justified and proportionate, may be supported by sanctions but only on condition that they are set according to transparent, objective, non-discriminatory and proportionate criteria and also they shall be subject to review (para 111), which is a requirement which has close thematic links with the Court’s treatment of UEFA’s rules on prior approval in Superleague. FIFA’s rules on transfers need to be made clearer. Probably it is required that it be possible to predict in advance what would be the consequence of a unilateral breach of contract. That, though, will be tricky if the individual circumstances of each case need to be taken into account, as is suggested by the Court in paragraphs 110, 111, 112, and 137. I am not suggesting FIFA’s re-design of its rules will be easy.

 

The Diarra ruling does not require that a renegotiation of the transfer system shall involve a formal role for player unions, but a strong theme in the ruling is that FIFA has presided over a system which is of huge advantage to some stakeholders and operates to the detriment of others. The Court is not shy of commenting on how the system works very well for clubs as employers (paras 107, 145). Re-negotiation of the transfer system through a process which gives thorough and sincere respect to the voice of the workers would increase the likelihood that a revised version will be compatible with EU law. More generally the Court will have performed a great service if this ruling triggers a deeper reform of governance in sport so that all affected interests – players, even fans - enjoy a louder voice in decision-making than occurs right now. Perhaps FIFA will do this; perhaps, if not, the EU will be tempted to adopt legislation mandating improvement in the standard of governance in sport in general or football in particular. I am aware how naïve that may sound.

 

Diarra summarised? Sport is special. Just look at paragraphs 100-103 and 143-144. But sport is not as special as special as the governing body claims, and the particular practices at stake have been found to violate EU law, and will require reform in the shadow of EU law. In that Diarra is in perfect alignment with Bosman and Superleague.