The University of Inland Norway and the Asser International Sports Law Centre invite the submission of abstracts for a workshop in Lillehammer on 4 and 5 December exploring the role of long-term contracts in sport and their characteristics through a variety of theoretical and methodological lenses.

Contracts play a crucial role in the world of sport, particularly long-term contracts. Contractual agreements form the foundation of transnational sports governance, SGBs are all formally the product of a specific time of contract (be it in the form of an association or corporation) often justifying the autonomy of sport and its private governance at a (more or less far) distance from the state.

Moreover, contracts establish long-term commitments between the parties involved, raising a variety of questions regarding the asymmetry in their positions, the scope of party autonomy, contractual mechanisms for addressing uncertainty, and their interaction with domestic and international mandatory regulations, among others. In short, it is impossible to fully understand the operation and limitations of transnational sports law and governance without investigating the many ways in which it is embedded in long-term contracts ruled by a variety of contract laws.

This workshop proposes to explore the role of long-term contracts in sport and their characteristics through a variety of theoretical and methodological lenses.

We welcome proposals touching on the following issues/case studies:

• The concept of time in sport and the definition of ‘long-term’ in sport-related contracts;
• The function of long-term contracts in transnational sports governance;
• The function of long-term contracts in the operation of private dispute resolution mechanisms (CAS, BAT, FIFA DRC);
• The transactional nature of long-term contracts in sport;
• The relational nature of long-term contracts in sport;
• The conflict between private autonomy and long-term contracts in sport;
• The intersection between private and public in the operation of long-term contracts in sport;
• Specific contractual arrangements, including:
• Contracts of association and SGBs
• Long-term (labour) contracts with athletes and coaches;
• Contracts related to the organization of mega-sporting events, including host city contracts;
• TV and media long-term contracts;
• Sponsorship agreements;
• and more.

Abstracts must be sent to Yuliya Chernykh (yuliya.chernykh@inn.no) by 15 June. 

Out of all the State aid investigations of recent years involving professional football clubs, the outcome of the Real Madrid case was probably the most eagerly awaited. Few football clubs have such a global impact as this Spanish giant, and any news item involving the club, whether positive or negative, is bound to make the headlines everywhere around the globe. But for many Spaniards, this case involves more than a simple measure by a public authority scrutinized by the European Commission. For them, it exemplifies the questionable relationship between the private and the public sector in a country sick of never-ending corruption scandals.[1] Moreover, Spain is only starting to recover from its worst financial crisis in decades, a crisis founded on real estate speculation, but whose effects were mostly felt by ordinary citizens.[2] Given that the Real Madrid case involves fluctuating values of land that are transferred from the municipality to the club, and vice versa, it represents a type of operation that used to be very common in the Spanish professional football sector, but has come under critical scrutiny in recent years.[3] 

By ordering the recovery of the granted State aid, the Commission showed that certain (land) transaction agreements between a public authority and a private entity can be caught by EU (State aid) law, regardless of the size and fame of the private entity. The ‘Real Madrid Saga’ (which, in addition to the Commission’s final decision, also includes the Commission’s opening decision, a number of rulings by Spanish national courts[4], a more than likely review by the Court of Justice of the EU, and a new deal between the club and the municipality) might serve as harbinger, in the professional football sector at least, for a shift towards more transparent and responsible conduct by clubs and public authorities.

This two-part blog will attempt to provide an overview of the ‘Real Madrid Saga’ in its broadest sense. The first part will briefly[5] outline the facts that led to the opening of the State aid investigation, and then analyse the role played by the Spanish national courts in the ‘Saga’. The second part will focus on the recovery decision of 4 July 2016 and dissect the arguments used by the Commission to reach it.  

The facts

The municipality of Madrid and Real Madrid have a rich history of land transactions. In fact, a particular agreement from 2001 was already questioned by a Member of the European Parliament, even though the European Commission, at that time, saw no reason to launch a full State aid investigation.

However the agreement of 29 July 2011 did not manage to escape Commission scrutiny. This agreement, referred to by the Commission as the “2011 settlement agreement”[6], settled two earlier agreements between the city Council and Real Madrid dating from 1991 and 1998 respectively. A simple analysis of the 2011 settlement agreement clarifies why the Commission doubted its legality. In 1998 Real Madrid transferred half of their old training grounds to the municipality. Additionally to a large sum of money, the club was to receive a number of terrains spread out over the municipality, including a terrain located in the area called Las Tablas valued by the technical services of the municipal administration at €595.194 in 1998.[7] At that time, the two parties “were of the opinion that the classification ‘reserved for sport’ would not exclude its transfer to private ownership”. This land was however never officially transferred to Real Madrid, and the entry of a local urban law in 2001 made the actual transfer legally impossible, because it stipulates that plots reserved for sport must be in public ownership. This was confirmed in 2004 by the Tribunal Superior de Justicia de Madrid (Madrid High Court), which ruled that the local urban laws prevent any private entity from holding the legal property over this type of plot (like the terrain in Las Tablas).[8] As a result, in 2011, the Council decided to compensate the football club not for the original value of €595.194 but for a staggering €22.693.054,44! Once again, this value was determined by the technical services of the municipal administration. Real Madrid was not compensated in the form of a sum of money, but rather it was presented with a packet of terrains including four terrains of a total area of 12.435 m/2 in the street Mercedes Arteaga in the Carabanchel district of Madrid.[9]

This last plot of land transferred to Real Madrid formed the subject of another land agreement dating from November 2011. The agreement became known as operation Bernabeú-Opañel and consisted of the following: The Council is to transfer to the club a terrain which borders the Bernabéu stadium. This would permit Real Madrid to cover its stadium with a roof, and to build a shopping centre and a hotel on the façade situated on the Paseo de la Castellana (one of Madrid’s most important streets). In return, the club agreed to transfer to the Council the shopping centre Esquina del Bernabéu, which is situated on the other side of the stadium. The Council would then demolish the shopping centre and convert it into a public park. The club also promised to transfer back to the Council parts of the four terrains located in the street Mercedes Arteaga that it received as part of the 29 July 2011 Agreement. In addition to the transfers of the old shopping centre and the terrains located in the street Mercedes Arteaga, Real Madrid is also to pay €6.6 million to the Council. The Council, however, encountered an obstacle in its own urban laws, which did not permit private parties, like Real Madrid, to construct on public terrains owned by the Council. Therefore, on 16 November 2012, the Government of the autonomous region of Madrid announced that the local urban law was to be modified ad hoc to enable the operation Bernabeú-Opañel.[10]

Even though no formal State aid complaint was ever submitted, the Commission nonetheless opened a formal investigation on 18 December 2013 based on “press reports and information sent by citizens”.[11] In its opening decision, the Commission provided a preliminary assessment of the 2011 settlement agreement under the EU State aid rules. It expressed doubts with regard to the legality of the transfer of the terrain in Las Tablas to Real Madrid; with regard to the evaluation of the market value of the Las Tablas plot of land; and with regard to market conformity of the value of the properties which were transferred to Real Madrid by the 2011 settlement agreement. Interestingly enough, although the Commission barely mentioned the operation Bernabeú-Opañel in its preliminary assessment (let alone assess it), it also doubted whether the subsequent exchange of land around the Bernabéu Stadium was carried out at market conditions.[12] 

The role of the national courts

In January 2012, the ecological movement Ecologistas en Acción (EeA) found several legal irregularities with regard to the Bernabeú-Opañel agreement, including the fact that no mention was made of the 2011 settlement agreement. It subsequently started legal proceedings in front of the Spanish administrative Court claiming that the ad hoc modification of the urban regulations was contrary the general interest and sought its annulment under Spanish law. In March 2013, a second action for annulment of the operation Bernabéu-Opañel was sought by the Ruiz-Villar family. For the sake of clarification, in the past this family was the owner of the land on which the Bernabéu stadium is build, as well as the plot of land next to the Bernabéu stadium that the Council wants to transfer to Real Madrid. Their action led to the judgment by the Madrid High Court of 2 February 2015, which will be elaborated on below. 

The Order for Interim Measures of 31 July 2014

At the time the European Commission opened a formal investigation in December 2013, EeA’s action for annulment under Spanish law was pending at the Madrid High Court. The fact that the European Commission was investigating the matter provided EeA the legal opportunity to invoke the so-called ‘standstill obligation’. The ‘standstill obligation’, found in Article 108(3) TFEU has direct effect and can therefore be called upon in front of national courts. Article 108(3) reads as follows: “The Member State concerned shall not put its proposed measure into effect until this procedure has resulted in a final decision (by the Commission)”. In other words, from the moment the Commission starts investigating the alleged State aid measure, the national court has an obligation to protect competitors and other third parties against (potential) unlawful aid since the Commission’s own powers to do so are limited.[13] It is, furthermore, settled case law that third parties who are not affected by the distortion of competition resulting from the aid measure can also have a sufficient legal interest of a different character, such as EeA, in bringing ‘standstill’ proceedings before a national court.[14]

EeA could not invoke the ‘standstill obligation’, as regards the 2011 settlement agreement, since the land transactions subject to that agreement had already taken place. Therefore, its focus was on preventing Real Madrid from carrying out the Bernabéu-Opañel project until the Commission closed its State aid investigation. On the one hand, this focus made sense given that EeA was also involved in a case in front of the same Court aiming to annul the operation Bernabéu-Opañel. On the other hand, it was not prima facie clear whether the ‘standstill operation’ also applied to the operation Bernabéu-Opañel, since the Commission’s opening decision made little reference to this project. In other words, it was not known whether the Commission was, in fact, actually investigating this operation.

In its Order for Interim Measures of 31 July 2014, the Madrid High Court stated that“(i)t does not correspond to this Chamber to determine at this procedural moment whether the transaction constitutes an illegal State aid or not but the inclusion of [the plots located in the street Mercedes Arteaga] in the scope of the [operation Bernabéu-Opañel] are sufficient circumstantial elements in order to determine a direct connection between the investigation undertaken by the Commission and the object of the present appeal”.[15]

With the link between the 2011 settlement and the operation Bernabéu-Opañel established by the Court, it recognised two possible reasons to suspend the renovation of the Bernabéu stadium:

- To safeguard the interests of the justiciable;

- To protect the affected parties by the distortion of competition caused by the aid.[16]

As regards the former, in essence the Madrid High Court had to decide whether EeA had standing to request the ‘standstill’. The CJEU has been quite clear on this matter: in principle, national procedural rules apply to ‘standstill’ proceedings.[17] In Spain, in administrative cases involving urban matters, the so-called acción publica urbanística, or urban public action principle, applies. This principle grants very extensive procedural rights to third parties who have a limited direct interest to launch proceedings in urban matters, including EeA in the Real Madrid case.[18] Indeed, given the possibility that procedural rights for third parties in urban matters are broader in Spain than in some, if not most, other EU Member States, standstill proceedings in other Member States could well be declared inadmissible for lack of interest under similar conditions.

With the standing of EeA recognized, the Court went on to suspend the renovation of the stadium not only to protect EeA of the distortion of competition caused by the concession of the aid, but also to protect Real Madrid itself. Allowing the renovation to go ahead could have very negative consequences for the football club if the aid were ordered to be recovered, such as the demolition of the newly renovated part of the stadium.[19] The argument that the suspension served to protect Real Madrid is hard to follow, since, as the EU State aid rules stipulate, it is up to the Member State to decide how incompatible State aid is recovered.[20] The Spanish authorities ordering Real Madrid to demolish its own stadium seems to be a rather exaggerated eventuality. Furthermore, one wonders whether suspending the renovation of the stadium really helps Real Madrid when, at that stage, there were not that many indications that the Commission was actually investigating the operation Bernabéu-Opañel.  

The judgment of 2 February 2015 ordering the annulment of the operation Bernabéu-Opañel

Any remaining criticisms regarding the Madrid High Court’s decision to suspend the renovation of the stadium were swiftly set aside when the same Madrid High Court annulled the whole operation in its judgment of 2 February 2015. As explained above, this was based on the action of annulment sought by the Ruiz-Villar family. This blog will not analyse this judgment in full detail, because it does not make any reference to the State aid investigation or any other aspect of EU law. The important element to take from this judgment, however, is that an ad hoc modification of the (local) urban law is only valid if it fulfils the general interest and not just the interest of one (private) party.[21] Real Madrid has publicly expressed that it intends to “convert the Club in a sporting institution of reference in the world. The aim is for the stadium to have a maximum level of comfort and services superior to the most modern and advanced sporting stadiums in the world”.[22] This objective was not considered by the court to be an objective of general interest and, consequently, does not allow for an ad hoc modification of the urban laws.

As a result, Real Madrid had to restart its entire renovation project while a potential negative decision State aid decision from the European Commission was still looming. Moreover, as will be shown in the second part of this blog, even though this judgment did not make a single reference to the State aid investigation, it still played an important role in the final outcome of the investigation.

[1] Elena G. Sevillano and Bruno G. Gallo, “Así gana el Madrid”, El País, 6 November 2011. See also “Ten Spain corruption scandals that will take your breath away”, The Local, 28 January 2016.

[2] Ozlem Akin et al., “The Real Estate and Credit Bubble: Evidence from Spain”, Barcelona GSE Working Paper Series Working Paper nº 772.

[3] See for example Nefer Ruiz Crespo, “Urban speculation by Spanish football clubs”, in Transparency International, “Global Corruption Report: Sport”, Routledge February 2016; and “Spain Corruption Report”, GAN Business Anti-Corruption Portal.

[4] Most notably Tribunal Superior de Justicia de Madrid - Sección nº01 de lo Contencioso- administrativo - Pieza de Medidas Cautelares- 357/2013 – 01, 31 July 2014; and Tribunal Superior de Justicia de Madrid - Sección nº01 de lo Contencioso- administrativo – Procedimiento Ordinario 371/2013, 2 February 2015.

[5] The background information on the Real Madrid case is more extensively found in a previous blog entitled: Oskar van Maren, “The EU State aid and Sport Saga – A blockade to Florentino Perez’ latest “galactic” ambitions (part 1)”.

[6] Commission decision SA.33753 of 4 July 2016 on the State aid implemented by Spain for Real Madrid CF, para. 6.

[7] Ibid, para. 10.

[8] Ibid, paras. 13-15.

[9] Oskar van Maren, “The EU State aid and Sport Saga – A blockade to Florentino Perez’ latest “galactic” ambitions (part 1)”.

[10] Ibid.

[11] Commission decision SA.33753, para. 1. For more information on why the Commission opened this case without a formal complaint, see Ben Van Rompuy and Oskar van Maren, “EU Control of State Aid to Professional Sport: Why Now?” In: “The Legacy of Bosman. Revisiting the relationship between EU law and sport”, T.M.C. Asser Press, 2016.

[12] Commission decision SA.33753 of 18 December 2013, State aid– Spain Real Madrid CF, paras. 41-43.

[13] Commission notice of 9 April 2009 on the enforcement of State aid law by national courts (2009/c 85/01), para.25. See also: Oskar van Maren, “The Real Madrid case: A State aid case (un)like any other?” 11 Competition Law Review 1:104.

[14] Commission notice on the enforcement of State aid law by national courts, para. 72. See also in that regard Case C-174/02, Streekgewest, ECLI:EU:C:2005:10, para. 19.

[15] Tribunal Superior de Justicia de Madrid - Sección nº01 de lo Contencioso- administrativo - Pieza de Medidas Cautelares- 357/2013 – 01, 31 July 2014, page 5. Disclaimer: This is an unofficial translation by the author of the blog.

[16] Ibid.

[17] Commission Notice on the enforcement of State aid law by national courts, para.70. See also Case C-368/04, Transalpine Ölleitung in Österreich, ECLI:EU:C:2006:644, para. 45. The Court also held that national procedural rules apply “as long as those national rules do not render excessively difficult the exercise of rights conferred by EU law”. In other words, if it is more difficult to get standing under national procedural rules than under EU procedural rules, then EU procedural rules apply.  

[18] Tribunal Superior de Justicia de Madrid - Sección nº01 de lo Contencioso- administrativo - Pieza de Medidas Cautelares- 357/2013 – 01, 31 July 2014, page 5.

[19] Ibid, page 6.

[20] Council Regulation (EU) 2015/1589 of 13 July 2015 laying down detailed rules fort the application of Article 108 of the Treaty on the Functioning of the European Union, Article 16(3).

[21] Tribunal Superior de Justicia de Madrid - Sección nº01 de lo Contencioso- administrativo – Procedimiento Ordinario 371/2013, 2 February 2015, page 10.

[22] Ibid, page 9.

At the end of December 2015, the CAS decided on a very public contractual dispute between Sporting Clube de Portugal Futebol SAD (Sporting) and Doyen Sports Investments Limited (Doyen). The club was claiming that Doyen’s Economic Rights Participation Agreement (ERPA) was invalid and refused to pay Doyen’s due share on the transfer of Marcos Rojo to Manchester United. The dispute made a lot of noise (see the excellent coverage by Tariq Panja from Bloomberg here, here and here) as it was the first TPO case heard by the CAS after FIFA’s ban. Yet, and it has to be clear from the outset, the case does not affect the legality of FIFA’s TPO ban; it concerned only the compatibility of Doyen’s ERPA with Swiss civil law. The hearing took place in June 2015, but the case was put under a new light by the football leaks revelations unveiled at the end of 2015 (see our blog from December 2015). Despite these revelations, the CAS award favoured Doyen, and was luckily for us quickly made available on the old football leaks website. This blog will provide a commentary of the CAS decision. It will be followed in the coming days by a commentary by Shervine Nafissi on the judgment, on appeal, by the Swiss Federal Tribunal.

I. The facts

During the summer of 2012, Sporting Clube de Portugal Futebol SAD (‘Sporting’) signed two professional football players: (i) Zakaria Labyad, a Dutch-Moroccan international from PSV Eindhoven for a transfer fee of €900,000; and (ii) Faustino Marcos Alberto Rojo (Marcos Rojo), an Argentinean international from Spartak Moscow for a transfer fee of €4 million.

Against this background, negotiations took place between Sporting and Doyen Sports Investments Limited (‘Doyen’), a private investment company known for its engagement in the acquisition of professional football players' economic rights. On 23 August 2012, Sporting and Doyen concluded a series of agreements which were aimed at providing a financial aid to Sporting in exchange for the acquisition of a proportionate share of Labyad's and Rojo's economic rights.

According to the Economic Rights Participation Agreement related to Labyad (‘ERPA 1’), Sporting accepted to transfer 35 % of Labyad's economic rights to Doyen against the payment of €1.5 million. The other Economic Rights Participation Agreement related to Rojo (‘ERPA 2’) obliged Sporting to transfer 75 % of Rojo's economic rights to Doyen for the price of €3 million. These agreements also provided Doyen with the unilateral so-called 'Put Option' to sell back to Sporting for a predetermined price its share of the players' economic rights in case Sporting should not have transferred the players on or before 1 July 2015.

On 28 March 2013, Sporting appointed a new Board of Directors. In order to ameliorate the club's financial situation, Sporting subsequently decided to put Rojo on a transfer list. At the same time, Sporting requested Doyen to find a solution for. Rojo. One of the main representatives of Doyen allegedly agreed on the transfer of Rojo to Calcio Catania, a then top-tier Italian club. Nonetheless, shortly thereafter, Sporting indicated that its new-appointed coach had decided to keep Rojo and asked Doyen to revoke the deal.

In the meantime, an agreement was signed between Sporting, the Dutch club SBV Vitesse Arnhem (‘Vitesse’) and Labyad, whereby the latter was loaned to Vitesse from 8 January 2014 until 30 July 2015. The loan was made without compensation. It was agreed that during the loan period that Vitesse would pay for the player's wages and secure the necessary insurance policies. This contract did not contain any purchase option.

Following his unexpectedly great performances in the Argentinean national shirt during the 2014 FIFA World Cup in Brazil, Rojo attracted many prominent clubs in Europe. Initially, Rojo was not willing to leave Sporting, but he switched this position in August 2014.

After a round of unsuccessful negotiations with Southampton F.C., Manchester United F.C. placed its offer for Mr. Rojo's services amounting €20 million. Eventually, on 19 August 2014, Sporting contractually agreed to transfer Mr. Rojo to Manchester for the sum of €20 million net, plus 20% of the capital gain of any future transfer above the amount of €23 million. On the same day, Manchester also accepted to transfer the Portuguese international Nani to Sporting on a temporary loan basis for one year.

By that time, relations between Sporting and Doyen deteriorated, particularly due their opposing views with respect to the applicability of the ERPAs to the case at hand. As a result thereof, Sporting notified Doyen of its intention to terminate both ERPAs. In its response, Doyen objected to the termination of these agreements and attached to its communication an invoice of €15 million to be paid in two instalments. On 28 August 2014, Sporting reimbursed to Doyen the value of its investment made under the ERPAs (i.e. the amount of €4.5 million).

On 16 October 2014, Sporting filed with the CAS a combined request for arbitration and statement of claim against Doyen in accordance with Article R38 et seq. of the Code of Sports-related Arbitration. On 21 October 2014, Doyen filed its request for arbitration against Sporting. Later that month, the parties agreed to consolidation of the both procedures. The hearing before the CAS was held on 16, 17 and 18 June 2015. Finally, on 21 December 2015, the CAS rendered its arbitral award.

II. The reasoning of the CAS

The CAS award is structured around Sporting’s various claims against the validity of the ERPA, as well as its contention of lawfulness of its breach. To do so, the CAS examined closely the compatibility of the ERPA with Swiss Law and EU Law.

1. Is the ERPA legal?

In a preamble, the CAS reminds that the “principle of party autonomy is the backbone of Swiss contract law”.[1] However, “Articles 19 and 20 CO [Swiss Code of obligations], prohibit contracts which are impossible, unlawful, immoral and/or contravene public policy or personality rights.”[2] In particular, the Sporting claimed that the performance of the contract is unlawful and immoral.

• Is the performance of the ERPAs unlawful under Swiss law?

As pointed out by the Panel, under Swiss contract law, an unlawful contract is null and void. According to the Swiss Federal Tribunal, “contract is unlawful when its content violates Swiss law (federal and/or cantonal)”.[3] The question was consequently whether Sporting could demonstrate such a violation. In this regard, the club argued first that the ERPAs contradicted Swiss labour law. The Panel, however, quickly rejected this argument, as the players were not parties to the ERPAs. The second, and more serious, potential violation of Swiss law pointed out by Sporting concerned Article 157 CPS (Swiss Penal Code).[4] The provision condemns profiteering and overlaps with article 21 CO (Swiss Code of Obligations) respective to unfair advantage.[5] Any claim stemming from article 21 CO must be raised within the first year after the conclusion of the contract, thus Sporting was time-barred. Regarding Article 157 CPS, the panel considered it “cannot be deemed violated in this case, since the acts invoked as being criminal by Sporting all fall outside the territorial scope of application of the CPS, bearing in mind that the contracts were signed outside Switzerland by non-Swiss individual/entities without any of the Parties’ acts or their effects occurring in Switzerland”.[6] Such reasoning would basically immunize from nullity any contract signed and enforced exclusively outside of Switzerland, even if found contrary to Swiss criminal law. In any case, the Panel went on to assess substantively whether the ERP violates Article 157 CPS. Following the jurisprudence of the SFT, profiteering is constituted “when business good practice requirements are grossly violated and the limits of what seems normal and usual in light of all the circumstances, are significantly exceeded (ATF 92 IV 132, consid.1)”.[7] Moreover, “the offender must know that the other party is in a weak position and must be aware of the fact that a) there is a disparity between the respective considerations and b) the victim accepts this unbalanced deal because of its weakened state (ATF 130 IV 106 consid.7.2)”.[8] Based on the following elements:

• Sporting was not inexperienced in sharing its players’ economic rights with investment funds.
• Sporting entered into contact with Doyen and asked for its financial assistance.
• Sporting needed Doyen’s support to finance the transfer of two players; one of them (Rojo) was also the “target” of another club, SL Benfica.
• The ERPAs were negotiated for a month, each party being assisted by lawyers and experts.
• The signatories confirmed that they freely chose to sign the ERPAs.
• Sporting’s new management was aware of the scope of the ERPAs but never contested their validity before August 2014.
• There is no evidence that the signature of the ERPAs has deteriorated Sporting’s financial situation.[9]
  

The Panel, hence, found “that at the moment of entering into the ERPAs, Sporting was not in a state of “need, dependence, inexperience, or weakness of mind or character”, which was exploited by Doyen”. [10] Moreover, “Sporting was not forced to sign these players and the acquisition of their services was certainly not a “matter of life and death” for the club”. [11] Henceforth, the CAS arbitrators concluded that “the material conditions for Article 157 CPS to apply are not met”.[12]

The Panel quickly brushed aside the claim that the ERPAs would contradict FIFA regulations as those are not mandatory provisions of Swiss law in the sense of Article 20 CO.

• Is the performance of the ERPAs immoral under Swiss law?

The second strand of arguments of Swiss law raised by Sporting concerns the immorality of Doyen’s ERPAs. As recalled by the CAS, immoral contracts under Swiss law are those that:

• fall under a dominant moral disapproval; or
• contravene the general sense of what is right and what is wrong; or
• go against the ethical principles and values of the legal system as a whole.

Moreover, on immorality, “Swiss case law is very restrictive and is mainly linked to sex-related cases, unfair competition and bribery”.[13] Thus, the fact “that there is a big disparity between the respective considerations is not in itself immoral”, as “the Swiss legal order do not forbid a difference in value between the contractually agreed performance”. [14] Thus, the CAS set out a very challenging legal framework for Sporting to demonstrate the immorality of the ERPAs.

The CAS Panel considered that a “global evaluation of the two ERPAs shows that both the club and Doyen entered into a standard business oriented deal, where the amount of the loan granted was not necessarily in relation with the percentage of the assigned economic rights”.[15] It also held that “[s]uch a profit sharing is quite usual in the football industry, where the transferee clubs often undertake to share a percentage of the future transfer with the player’s former club”. [16] Thus, it “finds that the object of the ERPAs is not legally immoral”.[17]

In the proceedings before the CAS, Sporting had insisted on the huge return on investment earned by Doyen on the Rojo ERPA, to highlight the discrepancy between the two sides of the contract. But the CAS Panel recalled “that the fact that there might be a disparity between the respective considerations is not immoral”.[18] Moreover, it pointed out that “a discrepancy in possible profits (one party making more profit than the other) is quite different from the scenario where only one party stands to gain and the other to lose”. [19] Hence, it concluded “that there was no “economical unbalance” as defined by Swiss law between Doyen and Sporting’s respective considerations”. [20] Furthermore, as Sporting was in financial difficulties at the time of the conclusion of the ERPAs, the CAS Panel “disagrees with Sporting when it claims that Doyen’s investment was risk free”.[21] It did insist that even if the “Put Option” and the “Minimum Interest Fee” were considered immoral, they would not come in play in the present case as they were not triggered.

Finally, the Panel assessed Sporting’s claim that the ERPAs would constitute an excessive restriction of Sporting’s economic freedom under Article 27(2) CC (Swiss Civil Code).[22] The CAS arbitrators refer to the SFT’s view that “a contractual limitation of economic freedom is disproportionate within the meaning of Article 27 para. 2 CC only when the obligee submits to someone else’s arbitrariness, gives up his economic freedom or restricts it in such a way that the foundation of his economic existence is jeopardized”.[23] In this regard the Panel concluded that “among all the creditors of Sporting (representing a consolidated debt of €500 million), Doyen was certainly not in a position to prevent Sporting from continuing its economic and other activities”.[24] Indeed, would Sporting “have failed to meet its commitments, it would not have been subjected for that reason alone to Doyen’s arbitrariness or threatened in its economic freedom in such a serious manner that the foundations of its economic existence would be jeopardized”.[25] Furthermore, responding to Sporting’s claim that its freedom to act was drastically curtailed by the ERPAs, the Panel held that the facts of the case demonstrate “that on important occasions, Sporting was free to act as it wished”.[26] In short, Sporting failed to demonstrate with concrete evidence that Doyen’s ERPAs were used to forced the club to take key economic decisions.

• Are the ERPAs contrary to EU law?

The claims of Sporting against the ERPAs based on EU law or the ECHR failed due to the lack of evidence presented by the club to support them. The incompatibility of an ERPA with EU competition law seems very difficult to demonstrate in the abstract. It is true that UEFA and FIFPro have submitted a joint competition law complaint to the European Commission against TPO contracts. Yet, it remains difficult to envisage the specific competitive restrictions or abuses of dominant position that could be argued against Doyen’s ERPAs. Additionally, regarding the potential infringement of the free movement rights of the player, the Panel rejected Sporting’s right to raise the argument in the name of the players.[27] In any case, this is a tricky argument for a club to make, because if ERPAs have the potential to affect the players’ freedom to work, it is only through the club’s willingness to punish the player for not accepting a transfer requested by a third party.

In conclusion, the CAS deemed Doyen’s ERPAs compatible with Swiss and EU law

2. Has Sporting unlawfully terminated the ERPA?

The next question was whether Sporting terminated the ERPAs with just cause. In this part of the award, the validity of the ERPAs is not anymore at play. Instead, it is the conformity of Doyen’s actions with the contractual duties stemming from the ERPAs which was scrutinized by the Panel. In this regard, the main argument of Sporting was that Doyen has violated the non-interference duties enshrined in Articles 6.2[28] and 14[29] of Rojo’s ERPA. The assessment of this claim is highly dependent on factual elements brought forward by Sporting and Doyen.

With regard to Article 6.2 of the Rojo ERPA, the Panel found “that Sporting has not established in a convincing manner that it expressly and unequivocally asked Doyen to stop looking for transfer offers for Mr Rojo”. [30] In particular, “the fact that the President and Vice-President of the club admitted that they would “keep the door open” to any sufficiently interesting offer”.[31] Additionally, the Panel held “that given the very long period of time during which Sporting expressly requested and/or implicitly accepted that Doyen seek offers on its behalf, it would have taken particularly clear written instruction for the latter to be led to believe in good faith that it must cease all activity”. [32] Hence, “in the absence of a clear revocation, Doyen was entitled to continue looking for better transfer conditions”.[33] The arbitrators concluded that Doyen had not breached Article 6.2 of the ERPA.

As regards Article 14 of the Rojo ERPA, and whether Doyen exercised pressure on Sporting’s transfer-related policy, the Panel’s holdings are less favourable to Doyen, even though Sporting’s claims are rejected in the end. In light of the evidence presented, the arbitrators refused to consider that Sporting had demonstrated that Doyen exercised undue or unusual pressure to impose the transfer of Rojo. They insisted on a number of circumstances that played in favour of Doyen:

• Doyen was only “relying on a contractual right” when drawing attention to the fact that it would claim the €15 million if Sporting refused to transfer Rojo;
• Doyen was willing to consider ways of improving (compared to the ERPA) the benefit Sporting would get from the transfer;
• Sporting never seemed impressed by Doyen’s messages and refused numerous proposals in the past;
• Doyen’s intervention led to a substantial increase of the transfer fee from €12.5 million to €20 million;
• Doyen tried desperately to get a meeting with Sporting’s President;
• Sporting went on to transfer Rojo to Manchester United by itself.[34]
  

In the award, the Panel did acknowledge that Nelio Lucas was “putting some pressure on Sporting but essentially in an attempt to obtain a meeting with Mr Bruno de Carvalho”.[35] Moreover, the Panel also noted “Doyen and Sporting had been in a business relationship on a long-term basis and were used to discussing openly and regularly”. [36] This part of the award illustrates the structural ambiguity and incoherence of the ERPAs. On the one side, as indicated under Article 6.2 and 14 of the ERPA, Doyen commits to not influencing a club’s policies, while, on the other, through Article 9, 10.4 and 15 of the ERPA, it can undoubtedly strongly influence the transfer policies of a club through economic pressure. The Panel decided to resolve this contradiction in favour of Doyen and refused to consider that it had breached its contractual duties enshrined in Article 14. This led the CAS to conclude that “Sporting cannot, in good faith, claim that it had a just cause to unilaterally terminate its contractual relationship with Doyen”.[37] Henceforth, the club was sanctioned to pay to Doyen a considerable sum of money approximating €12 million.

Conclusion: Is FIFA’s TPO ban at risk?

My first concluding point is related to the legality of TPO under Swiss law. I think by now everybody should be aware of the liberalism of Swiss contract law. To be deemed unlawful and/or immoral a contract has to reach a high bar, which, for the CAS at least, Doyen’s ERPAs do not pass. This is great news for Doyen, because if they did all its ERPAs would have been unlawful under Swiss law. Paradoxically, this liberalism is also why FIFA’s TPO ban, a contractual regulation by a Swiss association, is unlikely to be found contrary to Swiss law either. In any event, the CAS rightly points out the general hypocrisy underlying this dispute, TPO contracts are just a spin off of traditional contractual practices in football, and, indeed, clubs, which are speculating on the transfer market constantly (as Sporting was), are extremely badly placed to challenge the morality of TPO.

This leads me to my second point, and, paradoxically again, to a conclusion that I think reinforces the legitimacy of FIFA’s TPO ban. The rejection of Sporting’s claim that Doyen breached the ERPAs provisions highlights the shadowy nature of a transfer market ripe with conflicts of interests. The CAS Panel might very well conclude that Doyen did not force Sporting into transferring Rojo, but based on the facts of the case and what we know since then (on the dirty business tricks of Doyen revealed by the football leaks see here), it is easy to understand how Doyen can be suspected of influencing and controlling the transfer policies of any club with which it had signed an ERPA. The CAS felt that Sporting was playing a similar double game, and this might be true in practice, but the set-up of the contractual situation is such that it necessarily incentivizes speculation and abuses to the detriment of the stability of the clubs’ squads (which, as a reminder, is the main legitimate rationale recognized by the EU Commission to support the legality of the FIFA transfer system as a whole vis-à-vis EU competition law).

Is this award a blow to the legality of FIFA’s TPO ban? Personally, I doubt it (in this regard I differ slightly from Shervine’s conclusion in his case note on the Swiss Federal Tribunal decision to be published on this blog in the coming days). The award recognizes that under Swiss law this type of contractual practices (as many other controversial ones) is legal, but in turn this does not mean that FIFA (or any other State for that matter) is not legitimate in regulating or banning it. Instead, I believe the case highlights very well the many reasons why a TPO ban might be needed. Sporting’s dire financial fate puts a dim light on the incentives of club management to burden their clubs with huge financial risk for short-term sporting benefits. These risks are enhanced by the easy availability of TPO funding and the possibility to speculate on the players’ transfer value. Moreover, clubs tend to be too popular to fail, and investors are very much in a moral hazard position, knowing that municipalities prefer to bail out their local clubs rather than let them fail (see our blog on the rise and fall of FC Twente as a case in point). Finally, TPO enhances the complexity of the (already complex) contractual networks underlying player transfers. The practice makes it way harder (as highlighted by the CAS’s discussion of the steps leading to Rojo’s transfer) to disentangle the various contractual responsibilities, as well as the potential conflicts of interest that might in the end affect the field of play (through indirect financial pressure exercised on players, agents, managers or executives). This opaque complexity is a threat to the integrity of the game and an open door to financial speculation and abuses (as those highlighted by the recent football leaks).

[1] CAS 2014/O/3781 & 3782, Sporting Clube de Portugal Futebol SAD v. Doyen Sports Investment Limited, Award of 21 December 2015, para. 184.

[2] Ibid., para. 190.

[3] Ibid., para. 195.

[4] Article 157 (1) CPS reads as follows: Any person who for his own or another's financial gain or the promise of such gain, exploits the position of need, the dependence, the weakness of mind or character, the inexperience, or the foolishness of another person to obtain a payment or service which is clearly disproportionate to the consideration given in return, any person who acquires a debt originating from an act of profiteering and sells or enforces the same, is liable to a custodial sentence not exceeding five years or to a monetary penalty.

[5] Article 21 CO reads as follows:

1. Where there is a clear discrepancy between performance and consideration under a contract concluded as a result of one party’s exploitation of the other’s straitened circumstances, inexperience or thoughtlessness, the injured party may declare within one year that he will not honour the contract and demand restitution of any performance already made.

2. The one-year period commences on conclusion of the contract.

[6] CAS 2014/O/3781 & 3782, para. 211.

[7] Ibid., para. 212.

[8] Ibid., para. 213.

[9] Ibid., para. 220.

[10] Ibid., para. 221.

[11] Ibid.

[12] Ibid., para. 222.

[13] Ibid., para. 227.

[14] Ibid.

[15] Ibid., para. 231.

[16] Ibid.

[17] Ibid., para. 232.

[18] Ibid., para. 234.

[19] Ibid., para. 236.

[20] Ibid., para. 237.

[21] Ibid., para. 239.

[22] Ibid., paras. 240-249.

[23] Ibid., para. 242.

[24] Ibid., para. 246.

[25] Ibid.

[26] Ibid., para. 248

[27] Ibid., para. 260.

[28] Article 6.2 of the Rojo ERPA states that: “The FUND [Doyen] shall not share the Transfer Information with third parties other than its own advisers while such information remains out of the public domain, and shall be strictly prohibited from contacting or interfering in any way whatsoever, either directly or indirectly, with any of the parties (other than the Club) which is directly or indirectly involved in the negotiations of the potential Transfer, except with the written permission of the Club.”

[29] Article 14 of the Rojo ERPA states that: “The FUND recognizes that the Club is an independent entity in so far as the Club’s employment and transfer-related matters are concerned and the FUND shall not, either through this Agreement or otherwise, seek to exert influence over these matters or the Club’s policies or the performance of its teams.”

[30] CAS 2014/O/3781 & 3782, para. 279

[31] Ibid.

[32] Ibid., para. 280.

[33] Ibid.

[34] Ibid., para. 287.

[35] Ibid., para. 289.

[36] Ibid., para. 290.

[37] Ibid., para. 296