Asser International Sports Law Blog

Our International Sports Law Diary
The Asser International Sports Law Centre is part of the T.M.C. Asser Instituut

Balancing Athletes’ Interests and The Olympic Partner Programme: the Bundeskartellamt’s Rule 40 Decision - By Thomas Terraz

Editor’s note: Thomas Terraz is a fourth year LL.B. candidate at the International and European Law programme at The Hague University of Applied Sciences with a specialisation in European Law. Currently he is pursuing an internship at the T.M.C. Asser Institute with a focus on International and European Sports Law.

 

1        Introduction

The International Olympic Committee (IOC), after many years of ineffective pushback (see here, here and here) over bye law 3 of rule 40[1] of the Olympic Charter (OC), which restricts the ability of athletes and their entourage to advertise themselves during the ‘blackout’ period’[2] (also known as the ‘frozen period’) of the Olympic Games, may have been gifted a silver bullet to address a major criticism of its rules. This (potentially) magic formula was handed down in a relatively recent decision of the Bundeskartellamt, the German competition law authority, which elucidated how restrictions to athletes’ advertisements during the frozen period may be scrutinized under EU competition law. The following blog begins by explaining the historical and economic context of rule 40 followed by the facts that led to the decision of the Bundeskartellamt. With this background, the decision of the Bundeskartellamt is analyzed to show to what extent it may serve as a model for EU competition law authorities.

 

2        Rule 40 in Context

Before dissecting the decision, the considerable impact of the IOC’s rule 40 and its implementation by national Olympic committees (NOCs) must be emphasized. Many athletes look to the Olympic Games as a unique opportunity to gain exposure and benefit financially from their accomplishments, especially considering that many athletes who qualify for the Olympic Games struggle to make a living from their sport. Athletes are greatly reliant on external funding, particularly from sponsors, to fund their career.[3] To further complicate matters, many sports only enjoy a meaningful spotlight during the Olympic Games. Hence, athletes in those sports view the Games as an unparalleled occasion to become known to a wider public and gain new sponsors. So, why does the IOC restrict these opportunities?

Rule 40’s existence is principally due to The Olympic Partner Programme (TOP), a closed group of thirteen sponsors, which was created in 1985 with the aim of diversifying and securing greater means of funding for the Olympic Games.  It was the brainchild of Michael Payne who has defended the importance of preserving the ‘value of the Olympic sponsorship program’ to prevent a return to the days where the funding of the Games was highly dependent on ticket sales.[4] For the IOC, preserving the value of TOP has meant taking aggressive actions against ambush marketing, which according to Payne is ‘any communication or activity that implies, or from which one could reasonably infer, that an organisation is associated with an event, when in fact it is not’. Payne describes the ways in which the IOC has attempted to tackle ambush marketing, which includes educating the public about ambush marketing, preventing ambush marketing through prohibiting non-sponsor association and controlling Olympic imagery among other methods, and finally legal action, which according to Payne, ‘the mere threat of this is often enough to bring the offending party into line’. In this view, rule 40 can mainly be categorized as a preventative measure.

Rule 40 has also experienced an evolution ever since it was first introduced in 1991 into the OC, which has also meant that ‘defining the scope of rule 40 and understanding its nuances is a process that evolves with each iteration of the games’.[5] Although rule 40 has recently moved from a general ban on advertising with limited exceptions into allowing it under severe restrictions, it remains to be seen whether the IOC will fundamentally rethink the conditions applied to athlete advertising. Meanwhile, athletes, who were partly the initiators of the complaint to the Bundeskartellamt, have perhaps realized that public awareness campaigns have not brought about the drastic change they had hoped for. In the present case, the Bundeskartellamt’s attention was drawn to rule 40 OC after a complaint from Athleten Deutschland (German Athlete Commission) and Bundesverband der Deutschen Sportartikelindustrie (Federal Association of the German Sports Goods Industry).

 

3        Background to the Decision

Before examining the substance of the Bundeskartellamt’s decision, it is important to understand that rule 40, as it was analyzed in the decision, was the one that was in place in the lead up to the Rio 2016 Games.[6] It states:

 “Except as permitted by the IOC Executive Board, no competitor, team official or other team personnel who participates in the Olympic Games may allow his person, name, picture, or sports performances to be used for advertising purposes during the Olympic Games.”

In other words, a general ban on advertisement with limited exceptions. The applicable conditions meant that only athletes with TOP sponsors could launch an advertising campaign during the Rio 2016 Olympic Games and ongoing campaigns from non-TOP sponsors were subject to authorization. Further complicating the matter, NOCs could introduce additional restrictions or opt-out completely from allowing their athletes to advertise during the frozen period.[7] The German Olympic Sports Federation (DOSB), in its 2016 guidelines[AD1]  (page 78), distinguished between DOSB sponsors, Olympic sponsors and non-Olympic sponsors.[8] In the case of non-Olympic sponsors, ‘only advertising activities which had started at least three months prior to the Olympic Games had a chance of being approved’, which means potential sponsors needed to have early concepts ready before that date (early April). It should also be noted that at that time, the DOSB had not yet nominated any athletes for the Olympic Games. In addition to the deadlines, references to the Olympic Movement were strictly forbidden, which included an incredibly broad list of words and phrases.[9] If they wanted to participate in the Games, athletes were forced to subscribe to these rules via the athlete agreement (page 83) [AD2] and any breach could imply sanctions, which included removal from the Olympic Team.[10]

The conditions that these rules impose is succinctly summarized by Grady who explains that though the IOC claimed it had relaxed its rules, it ‘did not create the kinds of opportunities that the IOC may have envisioned’, which in effect ‘precluded almost all but the most powerful global brands from taking full advantage of the ability to feature Olympic athletes during the Games’, a view that was acknowledged by the Bundeskartellamt.[11]

 

4        The Bundeskartellamt’s Decision

Although the present case was resolved through the commitments made by the IOC, the Bundeskartellamt still provided a preliminary assessment concerning the relevant market, the abuse of a dominant position, possible justifications, and proportionality, which are analyzed below.

4.1       Relevant Market

Having decided to resolve the case on the basis of Article 102 TFEU,[12] the Bundeskartellamt identified the relevant market on the basis of a ‘modified concept of demand-side substitutability’ and defined the market as the ‘market for the organisation and marketing of the Olympic Games’.[13] It considered that the Olympic Games was an event that differed from other major sport events from the consumers’ point of view because of the wide variety of sports that are covered and because certain sports which perhaps are not normally broadcasted in a particular country receive extensive media coverage during the Games.[14] The Bundeskartellamt supported its analysis of the relevant market by referring to MOTOE in which the CJEU also defined the ‘relevant product market for the organisation (and marketing) of sports events according to the type of sport’.[15] Lastly, it found that the athletes participating in the Games to be ‘customers of the organisation and marketing of sport events’.[16] ‘Other well-known competitions’ could be considered as an alternative for certain athletes, however, many athletes practice sports that receive very little media attention outside the Games, meaning that overall the substitutability between the Olympic Games and other major sports events is limited.[17]

4.2       An Abuse of a Dominant Position

Next, the Bundeskartellamt considered the members of the Olympic Movement to be in a collectively dominant position in the aforementioned market and deemed them to be undertakings regardless of the fact that they do not make a profit.[18] It also asserted that the members of the Olympic Movement were abusing their dominant position, hindering effective competition, for several reasons. First, the registration deadlines to request authorization were set too early since athletes did not know whether they were even going to the Olympics in the first place. Moreover, the Bundeskartellamt ruled that the very use of registration and authorization criteria could have a prohibitive effect for certain kinds of advertisements. Even though ‘ongoing’ advertisement could be approved, it was still subject to restrictions since it could not use any ‘designations and symbols as well as images and videos’ connected to the Olympic Games.[19] As stated earlier, these are very extensive and make it ‘difficult to market an athlete’s participation in the Olympic Games’.[20] In the end, the sanctions that athletes could face exacerbated the restriction on competition, especially since the sanctions had no proportionality requirements and an appeal could only be made to the CAS.[21]

4.3       Justifications

At this point the Bundeskartellamt moved to make a preliminary assessment as to whether the abuse of the dominant position inherently pursued legitimate objectives and whether the restriction is proportionate to its claimed objective (the Wouters test[22]).  It is interesting to note that the Bundeskartellamt decided to apply the Wouters test to an Article 102 TFEU case and expressly stated that ‘it is to be assumed that the criteria are also meant to apply with regard to the applicability of Art. 82 EC’ (now Article 102 TFEU) in referring to the CJEU’s Meca-Medina case.[23]  Only one of the pursued objectives of the IOC was considered legitimate, while all the others, including ‘preserving the financial stability and sustainability of the Olympic Movement and the Olympic Games’, ‘preserving the value of the Olympic brand to finance the Olympic solidarity model’, and ‘preventing the excessive commercialisation of the Olympic Games’, were not found to be legitimate.[24] The three rejected objectives reflects the decisional practice of the Commission and the CJEU that ‘economic aims cannot justify restrictions’, which the Bundeskartellamt directly acknowledges.[25] This is why it is interesting that the Bundeskartellamt then found that the ‘prevention of ambush marketing during the frozen period in order to safeguard the funding of the Olympic Games, facilitated in part by Olympic sponsorship programmes, and thus to ensure that the Games can be held on a regular basis’ as the only legitimate objective.[26]

A literal reading of this aim seemingly exposes an economic dimension since the IOC wishes to protect TOP and as a consequence, its own budget. However, the Bundeskartellamt was convinced by the IOC’s contention that this was no economic objective,[27] since the ultimate aim of the objective is to ensure the Olympic Games’ consistent occurrence. It could be argued that there are in fact two objectives mangled into one: (1) the prevention of ambush marketing to protect TOP (an economically motivated objective) and (2) ensuring the regular occurrence of the Games (a non-economically motivated objective). The Bundeskartellamt decided to not disentangle the two and accepted that they were in fact one inseparable objective, whereby the latter sub-objective ultimately sidelines the economic dimension of the first. On the other hand, the CJEU’s case law on economic justifications has not been entirely consistent and there has been occasions where it has accepted economic justifications.[28] Furthermore, an efficiency defense could also allow for economic justifications in which the IOC could argue that preventing ambush marketing in order to protect TOP benefits consumers, outweighing any negative effects to competition.[29] In the end, it might be desirable that any future analysis of this dual objective at least acknowledge that there is an underlying economic interest. [TT3] 

4.4       Proportionality

Before analyzing the proportionality of the measure in terms of the prevention of ambush marketing, the Bundeskartellamt defined ambush marketing as ‘the planned endeavour of a company, which is not an official sponsor of a major (sports) event, to attract public attention to its own business by means of marketing activities related to the event, and thus to profit from the communication performance of the event (e.g. high profile, image) without making a financial contribution’.[30] In the corresponding footnote, the Bundeskartellamt makes reference to the definitions of ambush marketing on Wikipedia, which upon closer inspection is taken from Manuela Sachse’s book Negative Kommunikationseffekte von Sponsoring und Ambush-Marketing bei Sportgroßveranstaltungen. It is rather unfortunate that the Bundeskartellamt did not elaborate on why it chose this particular definition of ambush marketing.

Nonetheless, on the formal aspects, the Bundeskartellamt held that the DOSB’s pre-authorization scheme for individual advertisements was disproportionate, especially due to the deadlines. Moving to substantive aspects, it maintained that individual advertisement could only be prohibited if it violated specific legal provisions such as intellectual property rights or specific contractual obligations.[31] Violations of property rights ‘only exist in cases where the public perception is that there are economic and organisation relations between the owner of the property rights and the company which uses Olympic designations’, referring to the jurisprudence of the German Federal Court of Justice.[32] The Bundeskartellamt makes reference to the reasonably well-informed consumer standard, which is also recognized in EU law,[33] to explain that consumers are able to differentiate between ‘a sponsor’s advertising and a reference to the Olympic Games in a promotional context’ and that simply a positive association or temporal connection with the Olympic Games and Olympic Movement is not a violation of intellectual property rights.[34] In this regard, the Bundeskartellamt only found prohibiting the use of ‘Team Deutschland’ during the Olympic Games and the use of ‘a combination of the respective location and the year’, e.g. Rio 2016, during the frozen period to be proportionate, while finding the other restrictions to be disproportionate.[35] In terms of the restrictions on photos and social media posts, the Bundeskartellamt held that the general prohibition of taking photos at Olympic venues for individual advertising measures and posts on social media accounts that do not have any protected ‘designations or symbols’ to be disproportionate.[36]

Ultimately, the sanctions, in particular sporting sanctions, were judged to be disproportionate because of their potential impact on athletes’ careers, since they could affect the athletes existing and future sponsorship opportunities and a competition ban could also, depending on the athlete’s age and the ban’s length, end an athlete’s career. The very existence of sporting sanctions could have a ‘deterrent effect’.[37] Additionally, the CAS’ exclusive jurisdiction over disputes could jeopardize the effectiveness of competition law since ‘there is no guarantee that the parties’ action against an athlete will also be subject to judicial review under European antitrust law’, especially when considering that neither the Swiss or German courts would conduct such a review in an action against the enforcement of the award.[38]  Sports sanctions are also typically carried out by the sport bodies themselves, without intervention of public bodies. Interestingly, the Bundeskartellamt acknowledged the German athletes’ position that the CAS proceedings were longer and more costly than proceedings in front of German courts, which directly contradicts the IOC’s claimed benefits of sports arbitration.[39]

 

5        The Commitments and Potential for Further Intervention Under EU law

After two rounds of negotiations, the DOSB was able to put an end to its infringements by making several commitments that brought its policy on athlete advertisement into line with the Bundeskartellamt’s findings. The commitments submitted after the first round did not go far enough to quell the competition concerns and most sponsors and athletes found ‘little or no improvement in the modified guidelines’. The original commitments were deemed to be too restrictive on the protected Olympic related terms, not provide sufficient opportunities for advertising on social media, not sufficiently delineate the responsibilities of the different parties, and the exclusive jurisdiction of the CAS coupled with sporting sanctions continued to have ‘a strong deterrent effect’.[40] After the second round of negotiations, the most important  commitments included: (1) no more authorization required for advertisements during the frozen period and instead athletes can request that the DOSB review planned advertisements beforehand to confirm if it meets the admissibility criteria; (2) advertisement campaigns may now be launched during the frozen period; (3) pictures of athletes during Olympic competitions may be used for advertisement so long as it does not include protected Olympic logos, symbols or designations; (4) videos[41] are restricted only to the German House, the Olympic village or the back of house areas and (5) sports related sanctions are no longer available (only economic sanctions are possible) and athletes may have recourse to German courts. All in all, the new Guidelines will allow athletes to advertise during the Games provided that they observe certain restrictions that mainly relate to intellectual property rights.[42] This compromise fosters a far better balance between the IOC’s interests to protect the value of the Games and TOP and the athletes’ wish to expand their financial opportunities during perhaps the most important time of their careers.

The analysis undertaken by the Bundeskartelamt is likely to influence any future intervention of the European Commission on this issue. After all, it is quite possible that the Commission may have to take action since the Bundeskartellamt’s decision ‘is enforceable only as regards individual advertising and marketing activities of German Olympic athletes on the German market’. In doing so, the Commission may have to elaborate whether a pre-authorization scheme for advertisements with reasonable deadlines could be compatible with EU law and perhaps further scrutinize the definition of ambush marketing and potential objective justifications that are completely void of an economic motive. The Commission would likely evaluate any advertisement pre-authorization regime in light of the ISU criteria.[43] From a pure competition law perspective, it could also be an opportunity for the Commission and ultimately the CJEU to expressly confirm whether the Wouters test extends to Article 102 TFEU.

Regardless, Commissioner Verstager explained that this is ‘an example of the way the network operates, with the Commission and the German competition authority working closely together’. She also underlined that the Bundeskartellamt’s decision could ‘create incentives for a change of the relevant rules at national and international level, with the Commission following closely any developments in this direction’. Thus, the possibility that the Commission will at some point intervene seems dependent on how seriously the IOC takes this decision. In the meantime, British athletes have also threatened legal action on the basis of EU competition law against the British Olympic Association over its implementation of rule 40, which demonstrates the ongoing nature of this saga.

 

6        Conclusion

The Bundeskartellamt’s narrow interpretation of ambush marketing and emphasis on the protection of intellectual property rights will most likely influence the IOC’s strategy to protect the value of TOP. For example, it could prompt the IOC to place greater efforts into expanding its protected properties. Nevertheless, the IOC’s war against ambush marketing has widened from its original concept and even Michael Payne has been one to express his concern about the extent to which the IOC has gone in order to protect TOP and has expressed the need to apply the rules with ‘balance and common sense’. Albeit these comments were made concerning the rules for ‘clean’ venues at the London 2012 Summer Olympics, there is a certain resonance to the present situation and begs the question whether drastically restricting athletes in their often one-time chance to earn decent money through sponsoring is absolutely necessary to protect the economic viability of the Olympics as a whole.


[1] When the blog refers to rule 40, it refers specifically to bye law 3 of rule 40 OC.

[2] The ‘blackout’ period starts 9 days before the Olympic Game’s opening ceremony to 3 days after the closing ceremony.

[3] Nicholas Gary Schlereth and Evan Frederick, ‘Going for Gold: Social Media and the USOC’ [2017] 27 Journal of Legal Aspects of Sport 19.

[4] Michael Payne, ‘Ambush Marketing: The Undeserved Advantage’ [1998] 15 Psychology and Marketing 323.

[5] John Grady, ‘Analyzing Rule 40’s Restrictions on Using Atheletes in Olympic Sponsorship at Rio 2016’ [2017] 15 Entertainment and Sports Law Journal 1.

[6] Bundeskartellamt, Decision pursuant to Section 32b GWB Public version, B-226/17 (February 25, 2019) para 3.

[7] ibid para 5.

[8] ibid para 7.

[9] See ibid para 8 for examples.

[10] ibid para 11 and 65.

[11] Grady (n 7) and ibid para 69.

[12] Decision pursuant to Section 32b GWB Public version, B-226/17 (n 3) para 41.

[13] ibid para 44 and 56.

[14] ibid para 46-47.

[15] ibid para 46.

[16] ibid para 53.

[17] ibid para 54.

[18] ibid para 58-63.

[19] ibid para 71.

[20] ibid.

[21] ibid para 75-76.

[22] Case C-309/99 Wouters and Others [2002] ECLI:EU:C:2002:98, para 97.

[23] See Decision pursuant to Section 32b GWB Public version, B-226/17 (n 3) footnote 52.

[24] ibid para 102-105.

[25] See International Skating Union’s Eligibility rules (CASE AT. 40208) [2017] C(2017) 8240, footnote 350 and ibid para 95.

[26] Decision pursuant to Section 32b GWB Public version, B-226/17 (n 3) para 96.

[27] ibid para 27.

[28] For an exploration of accepted economic objectives see Sue Arrowsmith, ‘Rethinking the Approach to Economic Justifications under the EU's Free Movement Rules’ [2015] 69 Current Legal Problems 307.

[29] See for example, Case C-209/10 Post Danmark A/S v Konkurrencerådet [2012] ECLI:EU:C:2012:172, para 41-42.

[30] ibid para 97.

[31] ibid para 108-109.

[32] ibid para 110, referring to Federal Court of Justice, judgment of 15 May 2014 – I ZR 131/13, Olympia-Rabatt.

[33] Case C-210/96 Gut Springenheide and Tusky v Oberkreisdirektor des Kreises Steinfurt [1998] ECLI:EU:C:1998:369, para 31.

[34] Decision pursuant to Section 32b GWB Public version, B-226/17 (n 3) para 110-111.

[35] ibid para 115-118.

[36] ibid 119-120.

[37] ibid para 122.

[38] ibid para 124.

[39] ibid para 124.

[40] ibid para 128.

[41] Protected Olympic logos, symbols or designations are also not allowed in videos.

[42] Decision pursuant to Section 32b GWB Public version, B-226/17 (n 3) para 136-148.

[43] A pre-authorization scheme must (a) ‘provide for sanctions and authorization criteria that are inherent in the pursuit of legitimate objectives’, (b) ‘provide for objective, transparent and non-discriminatory sanctions and authorization criteria’ that are proportionate to its objectives, and (c) ‘provide for an objective, transparent and non-discriminatory procedure for the adoption and effective review of decisions’.


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Asser International Sports Law Blog | Doyen vs. Sporting I: Doyen’s Pyrrhic Victory at the CAS

Asser International Sports Law Blog

Our International Sports Law Diary
The Asser International Sports Law Centre is part of the T.M.C. Asser Instituut

Doyen vs. Sporting I: Doyen’s Pyrrhic Victory at the CAS

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

Comments (3) -

  • Elsa

    3/7/2017 4:46:48 PM |

    Merci pour le commentaire de la sentence. Mais celle-ci n'est malheureusement plus disponible sur le site de football leaks. Elle est également introuvable ailleurs en ligne. Serait-il possible de la publier sur votre blog qu'on puisse lire tout le raisonnement du TAS?
    Merci

Comments are closed