Contacts
In a landmark judgement, the European Court of Justice (“ECJ”) has ruled that key elements of the Fédération Internationale de Football Association (“FIFA”) transfer system violate European law (Case C-650/22). The case that gave rise to the said judgement relates to the former French football player Lassana Diarra (played inter alia for Real Madrid, Arsenal FC, Chelsea FC and Paris Saint-Germain) and his dispute with FIFA resp. his former club, Lokomotiv Moscow. This article aims to provide a brief background of the case, the key aspects of the ECJ judgment and the potential implications for the football industry overall.
FIFA’s transfer system
FIFA’s curent transfer system is based on the Regulations on the Status and Transfer of Players (“RSTP”). This set of rules was adopted on 22 March 2014 and came into force on 1 August of the same year. It stipulates that players must be registered with a club in order to participate in organized football. A player can only be registered with a new club if they receive an International Transfer Certificate (“ITC”) from their previous club.
The following two provisions are essential for the case of Mr. Diarra:
Article 9 RSTP concerns the issuing of the ITC, which is necessary for the registration of a player with a new club. According to said provision, the transferring club may not issue the ITC if there is a legal dispute between the player and the club regarding the cancellation of the contract.
Article 17 RSTP regulates the compensation payments in the event of a breach of contract. A breach of employment contract is deemed to exists if a player terminates his employment contract following an offer of another club and, therefore, without just cause. Such breach exposes the player’s liability, i.e. compensation due to his former club. This provision is intended to protect clubs from financial losses caused by the departure of important players. In the event the breach of contract was incited by another football club with which the player later signed a contract, said club and the player shall be jointly liable to pay the compensation.
In addition, the new club faces a sanction in the form of a transfer ban fortwo consecutive registration periods. In such cases, FIFA assumes that the new club has incited the player to breach the contract unless the new club can prove otherwise.
The Diarra case
In 2013, the French footballer Lassana Diarra signed a four-year contract with the Russian club Lokomotiv Moscow. However, after just one year, the relationship deteriorated, leading to Diarra clashing with the coach, refusing to train and, eventually, to the termination of the contract, for the club apparently wanted to cut Diarra’ssalary. The FIFA Dispute Resolution Chamber fined Diarra EUR 10’500’000.00 for cancelling his contract without just cause. This decision was confirmed by the Court of Arbitration for Sport in Lausanne.
In particular, Diarra alleged that the applicable FIFA regulations were hindering the search for a new club. Due to Art. 17 RSTP, the Belgian club RSC Charleroi was hesitant to offer Diarra a contract, since the club feared the high compensation payments. Diarra then took legal action against FIFA and the Belgian Football Association, claiming damages and compensation for lost earnings in the amount of EUR 6’000’000.00. He argued that FIFA’s transfer rules restrict his freedom of movement and competition between clubs.
The ECJ judgment
The position of FIFA and RBFA
FIFA and the Royal Belgian Football Association (“RBFA”) argued that the RSTP rules serve the legitimate public interests of ensuring the stability of contractual relations and the continuity of team line-ups in professional football.
They argued that uncontrolled player transfers during the season could jeopardize the fairness of the competition and the financial stability of the clubs. They also emphasized that unrestricted transfers could lead to competitive distortions, as financially strong clubs could poach the best players and dominate the competition. According to FIFA and the RBFA, these objectives justify the restrictions on the free movement of workers and on competition.
Diarra’s position
Diarra argued that the rules of the RSTP, in particular Article 9 and Article 17, restrict his freedom of movement and competition in European football and thus violate Articles 45 and 101 of the Treaty on the Functioning of the European Union (“TFEU“).
Article 45 TFEU guarantees the free movement of workers within the EU. It stipulates that workers from a member state may move freely to another member state and work there without being discriminated against on the basis of their nationality.
Article 101 TFEU relates to competition in the EU’s internal market. It prohibits agreements or decisions between companies and/or associations that affect trade between member states or restrict, prevent or distort competition in the internal market.
Joint liability of the new club: The provision of Art. 17 RSTP on the new club’s joint liability in the event of a breach of contract places a disproportionate burden on players and clubs. The unpredictable financial risk and the threat of joint liability for compensation for breach of contract deter clubs from signing players who are involved in a legal dispute with their previous club.
Lack of transparency of compensation payments: The criteria for setting compensation payments according to Art. 17 RSTP are untransparent and are unpredictable. This leads to legal uncertainty and further discourages clubs from signing players involved in disputes with their former clubs.
Automatic refusal of the ITC: The inflexible regulation set forth in Art. 9 RSTP on ITC issuance, which provides for an automatic refusal of the ITC in the event of existing legal disputes, effectively ties the player to his club for the duration of a legal dispute and prevents him from continuing his career in another member state.
Restriction of competition for players: The FIFA rules restrict competition between clubs for players, as clubs are deterred from signing players involved in legal disputes due to the threat of sanctions and financial risks. This applies in particular to smaller clubs that do not have the financial resources to take the risks.
Restriction of the free movement of labor: The restrictions on player mobility imposed by FIFA have a negative impact on the free movement of labor in European football.
The position of the ECJ
The ECJ recognized that the organization of international football competitions requires the harmonization of common rules to ensure fair competition. It confirmed that FIFA is responsible for determining team composition and player eligibility requirements.
However, the ECJ found that the RSTP unduly restrict the free movement of players within the EU by imposing disproportionate financial risks and sanctions on players and their clubs. The FIFA rules were qualified as decisions of an association of undertakings, which are prohibited under Article 101 TFEU if they restrict or distort competition. The rules on compensation for breach of contract and on the granting of ITC were viewed particularly critically:
Article 17 RSTP: The rules for calculating compensation are untransparent, unpredictable and disproportionate. The ECJ criticized the vague criteria and the joint and several liability of the new club as a disproportionate burden.
Article 9 RSTP: The rigid regulation for the automatic refusal of the ITC in existing legal disputes prevents transfers during the legal dispute and represents an unreasonable restriction of the player’s freedom of movement.
The ECJ stated that while FIFA’s rules may be justified by legitimate objectives related to the organization and integrity of football, the specific rules on compensation payments and ITC violate the principle of proportionality.
The FIFA regulations are not necessary to achieve the legitimate objectives, as there are less restrictive means to ensure the integrity of the competition and the stability of the teams without unduly restricting the fundamental freedoms of the players.
In summary, the ECJ ruled that the said rules unduly restrict the freedom of players in the EU and violate the principles of proportionality and competition law. The regulations for calculating compensation and for the automatic refusal of ITC were criticized as untransparent and disproportionate, as there are less restrictive means of safeguarding the integrity of the competition.
Impact of the judgement
This decision could significantly strengthen players’ rights, as future regulations could make it much easier and less costly to transfer to a new club. Similar to the 1995 Bosman ruling, which allowed players to leave their club without compensation when their contract expired, the Diarra ruling could revolutionize the transfer market.
The ruling should not be interpreted to mean that financial penalties are no longer possible and that professional footballers can now leave their current contract without any obstacles and simply sign a new one. Rather, the ECJ has ruled that FIFA is pursuing legitimate objectives by seeking to strengthen the stability of competition and contractual relations. What was essentially criticized and established by the ECJ is that the lack of transparency as well as the excessive and disproportionate nature of the penalty payment are unlawful, i.e. not the penalty payment in itself.
As the judgment calls into question the current version of Art. 9 and 17 RSTP on the issuance of the ITC and compensation payments, FIFA is now required to revise its regulations to comply with the judgment. These adjustments could result in legal uncertainties and lengthy negotiations for clubs and players.
Overall, the ruling could lead to more fairness and transparency in professional football, although the specific effects will depend on how FIFA now adapts its rules.
Concluding remarks
The ECJ’s ruling in the Diarra case represents a significant shift in the landscape of professional football, challenging key elements of FIFA’s transfer system. By ruling that the current rules on compensation payments (Art. 17 RSTP) and the issuance of the ITC (Art. 9 RSTP) violate EU law, the court has paved the way for greater freedom of movement for players and fairer competition between clubs. This judgment could have a transformative impact, akin to the 1995 Bosman ruling, potentially reducing financial barriers for player transfers and prompting FIFA to overhaul its regulations. The outcome will likely lead to more transparency and fairness in football transfer system, but the path ahead remains complex, with legal uncertainties and negotiations shaping the next phase of regulatory adjustments in the sport.
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