Introduction
On 1 April 2015, the new FIFA Regulations on
Working with Intermediaries (hereinafter referred as the Regulations) came into
force. These Regulations introduced a number of changes as regards the division
of competences between FIFA and its members, the national associations. A particularly
interesting issue from an EU competition law perspective is the amended Article 7 of the Regulations. Under paragraph 3, which regulates
the rules on payments to intermediaries (also previously referred to as ‘agents’), it is recommended that the
total amount of remuneration per transaction due to intermediaries either being
engaged to act on a player’s or club’s behalf should not exceed 3% of the
player’s basic gross income for the entire duration of the relevant employment
contract. In the case of transactions due to intermediaries who have been
engaged to act on a club’s behalf in order to conclude a transfer agreement, the
total amount of remuneration is recommended to not exceed 3% of the eventual
transfer fee paid in relation to the relevant transfer of the player.
In other words, the new Regulations recommend a
benchmark cap on the percentage of remuneration that an intermediary engaged in
negotiations with a view to concluding an employment contract or a transfer
agreement can receive for his/her service. From the perspective of an antitrust
lawyer such a provision immediately rings a bell of a potential distortion of
competition. The Association of Football Agents (AFA), the representative body
of 500 football agents in England, contends in a complaint to the European Commission that Article 7(3) of the
Regulations distorts competition under EU law. In this regard, the present blog
post will analyse whether Article 7(3) of the Regulations infringes Article 101
of the Treaty on the Functioning of the European Union (TFEU). If so, what would
be the possible justifications and which are the requirements that must be fulfilled
in the case at hand.
The general rule
To begin with, Article 101(1) of the TFEU
stipulates that the following shall be prohibited: “all agreements between undertakings, decisions by associations of
undertakings and concerted practices which may affect trade between Member
States and which have as their object or effect the prevention, restriction or
distortion of completion within the internal market”.[1]
Thus, in order to find an infringement of Article 101(1), it must be
established that 1) the FIFA Regulations constitute a decision by an association
of undertakings; 2) that Article 7(3) of the Regulations may affect trade
between EU Member States; and 3) that Article 7(3) of the Regulations has as
its object or effect the prevention, restriction or distortion of competition
within the internal market.
Decision by an
association of undertakings
Even though, the concept of ‘decision by an association of undertakings’
is not defined in the founding treaties of the European Union, this notion has
been interpreted broadly by the Court of Justice of the European Union (CJEU).[2]
In order to determine whether the FIFA Regulations are to be regarded as a
decision of an association of undertakings within the meaning of Article 101(1)
TFEU it has to be established that the members of FIFA are undertakings for the
purpose of EU competition law and that FIFA constitutes an association of
undertakings. In Piau it was settled
that “…it is common ground that FIFA’s
members are national associations, which are groupings of football clubs for
which the practice of football is an economic activity. These football clubs
are therefore undertakings within the meaning of Article 81 EC and the national
associations grouping them together are associations of undertakings… ”.[3]
Therefore, from the judgement of the Court of First Instance (now the General
Court) it is plain that FIFA constitutes an association of undertakings within
the meaning of Article 101(1) TFEU. As regards the concept of ‘decision’, the General Court declared
that since players’ agents receive a fee on a regular basis for the provision
of their service, this constitutes an economic activity which does not fall
within the scope of the specific nature of sport as defined by the previous CJEU’s
case-law.[4]
Moreover, the Regulations adopted by FIFA are binding on national associations members of FIFA and
on clubs, players and their agents and thus those regulations constitute a
decision by an association of undertakings within the meaning of Article 101(1)
TFEU.[5]
In addition, in a recent case, the CJEU adjudged that even a price
recommendation, regardless of its exact legal status, may be regarded as
constituting such a decision.[6]
Therefore, from the abovementioned it follows that based on the proximity of
the legal issues discussed in Piau and
the main research question at hand, it is likely that the new FIFA Regulations will
be deemed a decision by an association of undertakings for the purpose of
Article 101(1) TFEU.
Effect on trade between
Member States
According to the Commission guidelines on the effect on trade, it is the
agreement or decision that must be capable of affecting trade between Member
States. It implies that there must be an impact on cross-border economic
activity and that it must be possible to foresee with a sufficient degree of
probability that the decision may have direct or indirect, actual or potential
influence on trade between EU countries.[7]
Since the Regulations at hand bind all members of FIFA, including all 28 EU
Member States, and concern intermediaries operating in every EU country, there
is undoubtedly a potential effect on trade between Member States. As a result
of the provisions under Article 7(3) of the Regulations on Working with
Intermediaries, every football player or club’s agent in the EU will be potentially
restricted to receive a remuneration under the specified recommended price cap.
Therefore, the second condition under Article 101(1) TFEU is also fulfilled.
Object or effect the
prevention, restriction or distortion of competition
Article 101(1) (a) TFEU lists “…directly or indirectly fix purchase or
selling prices…” as an object by an agreement that constitutes a
restriction on competition.[8]
Further, the Commission has continuously interpreted recommended pricing as falling under the category of
price fixing in the sense of Article 101.[9]
In this line of reasoning, the CJEU stated that in order to establish that a
recommendation constitutes price-fixing, account must be taken of three
factors: 1) the common interest between the members of the association, 2) the
nature of the recommendation and 3) the statutes of the association.[10]
The same test was later applied also by the Commission in its Fenex Decision.[11]
Furthermore, in its Guidelines on the applicability of
Article 101 to horizontal co-operation agreements, the Commission has acknowledged
that any standard terms containing provisions which influence the prices
charged to customers, including recommended prices, would constitute a
restriction of competition by object. The General Court has also confirmed that
recommended rates may constitute indirectly a pricing system binding its
members.[12]
Therefore, Article 101(1) (a) TFEU has been interpreted by the Commission and
the CJEU as capable of encompassing “recommended
prices” under the scope of “price-fixing”.
As regards the content of Article 7(3) of the
Regulations, it clearly recommends a 3% benchmark cap on the remuneration an
intermediary may claim as a result of his/her service. Firstly, even though the
provision recommends the percentage cap, the national football associations are
bound to implement the Regulations at the national level and the decision of
whether to impose the remuneration cap is ultimately determined by the football
clubs and the players.[13]
By being able to limit the percentage of the commission that an intermediary
can receive for a certain transaction, the relevant participating clubs and
football players will have the common interest to secure a bigger ‘piece of the pie’ for themselves. Secondly,
the nature of the recommended cap, even though non-binding, is detailed, clear
and specific. It also appears in a binding legislative document, which national
associations are required to fully implement. Nonetheless, even if they decide not
to apply the recommended price cap, clubs and players will still be inevitably
influenced by such a recommendation in their business activities.[14]
Therefore, indirectly the nature of Article 7(3) encourages national
associations to follow the recommended limit on agents’ remuneration. Lastly, the
statutes of FIFA (Articles 2, 5, 10 and 13), give
the Association the competence to draw up regulations and ensure their
enforcement, regulate the transfer of players and oblige its members to fully
comply with its regulations. As a consequence, even though the remuneration cap
is a recommendation by FIFA it is highly likely that de facto this provision will lead to a coordinated behaviour among
clubs and players as regards limiting the maximum payment that an intermediary
can receive.
Typically, agents receive between 5-10% of
their player’s gross income, so the limit of 3%, if enforced, would be a
serious damaging shift for agents from a financial perspective as well.[15]
Moreover, Article 7(3) of the Regulations constitutes a measure that could also
be detrimental to the players and the quality of service that they receive. Due
to the price cap, intermediaries will be discouraged to compete and improve.
The goal of players’ having experienced and professional agents, who provide a
high quality of services, is to assist and guide athletes in achieving the best
possible deal in usually considered short careers.[16]
As a result, the benchmark cap enshrined in Article 7(3) has the object of
distorting competition on the market of football intermediaries’ services by
both limiting the amount of remuneration and by indirectly decreasing the
quality of the provided services.
At national level, not only the AFA in the UK has
contested the Regulations, but also recently, after a complaint lodged by Rogon
Sport Management, the German District Court (Landgericht
Frankfurt/Main) suspended the implementation of the
national regulation adopted by the German Football Association (DFB) transposing
the FIFA’s Regulations. The District Court ruled that the limit on agents’ commissions
in player transfers constitutes and unlawful restriction on the right to provide
services even though DFB was following the recommendations stipulated by FIFA.
In the alternative, even if a restriction by
object cannot be established, Article 7(3) still has the effect of distorting
competition under Article 101(1). The criteria establishing whether a decision by
an association is restrictive by its effect include defining the relevant
market and assessing the possibility to access it, while taking into account
existing and new competitors.[17]
It must also be appraised whether the decision restricts actual or potential
competition that would have existed in its absence.[18]
Concerning the present discussion, Article 7(3) of the Regulations applies on
the market of football intermediaries’ services in the EU. There will be
undoubtedly an effect on the behaviour of existing intermediaries since
normally their remuneration has been 5-10% and now it will be capped to 3%.
This amendment could have the possible effect of lowering the level of competition
on the market, decreasing the quality of the provided services and possibly
driving some intermediaries out of business. In the absence of the decision at
hand, these effect on competition would be significantly less likely to occur.
As a consequence, the decision of FIFA to recommend a restriction on the
remuneration of football intermediaries will have the effect of distorting
competition.
Therefore, from the abovementioned analysis it
follows that the recommended remuneration cap of 3% falls under the scope of
Article 101(1) TFEU and constitute a decision by an association which has
effect on trade between Member States and which restricts competition within
the internal market.
Possible Justification
Although, a restriction within the meaning of
Article 101 has been established, it remains to be analysed whether such a
restriction may be justified. In Wouters,
the CJEU held that not every decision of an association of undertakings
which restricts the freedom of action of the parties necessarily falls within
Article 101(1).[19]
In order to apply this provision, account has to be taken of the overall
context in which the decision was taken, its objectives. Subsequently, it has
to be considered whether the consequential restrictive effects are inherent in
the pursuit of those objectives.[20]
In that context, it is important to verify whether the restrictions of
competition are limited to what is necessary to ensure the implementation of
legitimate objectives.[21]
In other words, for a restriction to be justified, there must be a legitimate
reason and the restrictive measure has to be necessary and proportionate for
the achievement of the legitimate aim.
In Piau,
the Regulation of Agents was justified as it aimed “to raise the professional and ethical standards for the occupation of
players’ agent in order to protect players, who have a short career”.[22]
In this case, the General Court ruled that the Commission did not err in its
assessment by deciding that the licence system in place, which imposes
qualitative rather than quantitative restrictions, seeks to protect players and
clubs and takes into consideration the risks incurred by players in the event
of poorly negotiated transfers.[23]
Moreover, according to FIFA, the European Commission, EPFL and FIFPro, it is indisputable that the aim of
the new Regulations is to enhance financial transparency related to players’
transfers and the protection of minor players. In this regard, even though the
Commission or the CJEU has not yet decided upon the legitimacy of Article 7(3),
it can be fairly assumed that the percentage cap, aiming to protect the exploitation
of football players through enhanced financial transparency, can be considered
as a legitimate aim.
Nevertheless, contrary to Piau, which concerned the licensing procedure of an agent, the
present Article 7 stipulates a qualitative criterion rather a quantitative one.
Furthermore, it is dubious whether such a recommended benchmark is suitable for
achieving the legitimate aim of protecting football players. According to some commentators, it is foreseeable that the
remuneration cap will lead to underhand, illegal payments so that
intermediaries can maintain the level of compensation that they receive. As a
result, intermediaries will further the very problem that FIFA intends to
resolve by behaving in a manner that completely negates the primary purpose of
the regulations. It can thus, lead to agents looking for new inventive ways to
secure payment, for instance through higher percentage for work carried out in
relation to the player’s commercial rights or signing longer representation
contracts, which in turn can also result
in exploiting players. Some other negative effects may be the emergence of more
persons involved in player transfers (lawyers, accountants or financial
advisors), leading to less legal certainty and more disputes over the question who
is liable for a certain transaction. Furthermore, a protection of minor players
(Article 7) and ensuring financial transparency (Article 6) are already
regulated in other provisions of the Regulations and thus a 3% cap seems to be
redundant limitation towards the achievement of those goals.
Instead, other less restrictive possibilities
for attaining the protection of football players are available. As proposed by
AFA, a model of self-regulation and accreditation of intermediaries can be set
up in co-operation with the national football associations.[24]
By such a system, clubs and players could ensure themselves that an
intermediary is of a particular standard, even though they would have the freedom
to conclude a contract with those agents who do not fulfil a binding
accreditation standard.[25]
Such a system will not only be more preferred than the current FIFA’s
Regulations but it will also be compatible with EU competition rules.[26]
Other commentators consider that a more efficient option would be for FIFA not
to cap agent fees but rather to strengthen existing ‘fit and proper’
enforcement measures to ensure global compliance with those standards. In this way,
the fear expressed by FIFPro that “unnecessarily large amount of money disappears from professional
football through agents” will be countered by stricter enforcement measures
without restricting competition on the market. Another option for FIFA to avoid
anti-competitive effects is for example, the publication of historical or survey-based price
information by independent parties. Such regular publications might provide
more trustworthy price guides reflecting the dynamics of the relevant market,
enhance price transparency and at the same time avoid distortion of
competition.
In any event, the measure in question appears
to go beyond what is necessary. Typically agents receive between 5-10% of the
player’s gross income and thus, a 3% recommended cap is seriously damaging the financial
interests of intermediaries. Here, it ought to be mentioned that during the consultation process at FIFA’s Executive Committee,
which led to the approval of the Regulations, all relevant stakeholders were
present (member associations, clubs, FIFPro, professional football leagues, etc.)
with the exception of any intermediaries’ representatives. Subsequently, the
interests of agents were neglected during the discussion and the outcome was a
stronger bargaining power granted to clubs and players in relation to
transfers’ negotiations. This imbalance might lead to an asymmetry of
information between agents and players and thus, to a distortion of the market.
Further, not only is the content of Article 7(3) too strict but it is also too
general and broad, encompassing all intermediaries and not foreseeing any
exceptional circumstances. There is also no procedure in place, which allows
agents to prove their qualifications and loyalty. As a result, even though an
intermediary must have an impeccable reputation and is not allowed to charge
minor football players, he/she is still presumed to be abusing his/hers powers
and there is no mechanism allowing an intermediary to rebut this presumption.
Since, Article 7(3) of the Regulations does not
satisfy the broad criteria for justification in Wouters and API, it is
highly unlikely that it will pass through the narrow efficiencies test laid
down in Article 101(3) TFEU. Hence, this assessment will not be analysed in
this blog post.
Therefore, regardless of the fact that Article
7(3) of the Regulations serves a legitimate aim, it is dubious whether this
particular measure is suitable for the achievement of the said goal and it is
apparent that its restrictive effects go beyond what is necessary.
Conclusion
In this post, the potential negative effects of
Article 7(3) of the FIFA Regulations on Working with Intermediaries on EU
competition law were considered. It was concluded that pursuant to the Piau case and the Commission’s decisional
practice, such a recommendation constitutes a decision of an association of
undertakings which is capable of distorting competition within the meaning of
Article 101(1). Next, it was analysed whether the legitimate reason of
preventing the abusive practices of players’ exploitation can justify the
restriction on competition. The author’s view is that a 3% cap on the
commission granted to agents is not the most appropriate measure to do so and
thus it constitutes a disproportionate restriction on EU competition rules.
[17] Case C-234/89 Delimitis [1991] ECR I-0935 paras
14, 16 and 18.