Part Two of this series looked at the legal challenges FFP has faced in the five years since the controversial ‘break even’ requirements were incorporated. Those challenges to FFP’s legality have been ineffective in defeating the rules altogether; however, there have been iterative changes during FFP’s lifetime. Those changes are marked by greater procedural sophistication, and a move towards the liberalisation of equity input by owners in certain circumstances. In light of recent statements from UEFA President Aleksander Čeferin, it is possible that the financial regulation of European football will be subject to yet further change.

FFP from 2010 to 2015 

FFP was integrated into UEFA’s licensing requirements in the Club Licensing and Financial Fair Play Regulations Edition 2010.  In the 2010 Edition, implementation of FFP was to be overseen by the UEFA Club Financial Control Panel. Disciplinary action was carried out by the UEFA Control and Disciplinary Body, whose decisions could be appealed to the UEFA Appeals Board.

In the Club Licensing and Financial Fair Play Regulations Edition 2012, the oversight and disciplinary procedure of FFP was amended. The functions of the Club Financial Control Panel, Control and Disciplinary Body, and Appeals Board were replaced with a two-tier Club Financial Control Body (CFCB). The two chambers of the CFCB are the Investigatory Chamber, which actively monitors FFP compliance; and the Adjudicatory Chamber, which levies sanctions for non-compliance.

Under Article 53.1 of the 2012 Edition rules, the CFCB “carries out its duties as specified in the present regulations and the Procedural rules governing the UEFA Club Financial Control Body” (the Procedural Rules). The bespoke Procedural Rules establish a framework for the composition of the CFCB, the decision making processes of both the Investigatory and Adjudicatory Chambers, and the rules applicable to the whole proceedings. Like the Club Licensing and FFP Regulations, the Procedural Rules have gone through iterative changes (2014, and 2015 editions).

The Procedural Rules are a welcome development to FFP, ensuring the independence of the CFCB (Articles 6 and 7); bestowing broad investigatory powers upon the Investigatory Chamber (Article 13); and setting clear parameters for disciplinary action and process, including setting out potential disciplinary measures (Article 29). Overall, the Procedural Rules increase the legal sophistication of the end-to-end FFP process, and in doing so reduce the risk of irrational or arbitrary outcomes.  This protects clubs and UEFA; clubs who are in breach of FFP have clear guidance on the process that will be followed; clubs who adhere to FFP are reassured that those clubs who breach the rules will be put through a sophisticated investigation and (if necessary) disciplinary process (and additionally, pursuant to Article 22, where third party clubs and member associations are affected and have a legitimate interest in joining proceedings before the Adjudicatory Chamber, may do so); and UEFA, in having a clear and detailed rules governing procedure, helps to insulate FFP from legal challenge.

(By way of aside, in light of the changes to the procedure governing FFP sanctions, it is noteworthy that Bursaspor, in CAS 2014/A/3870 Bursaspor Kulübü Derneği v. Union des Associations Européennes de Football, argued that Control and Disciplinary Body and Appeals Board were “not professional on financial subjects”, although the Turkish club was unsuccessful in its appeal, and UEFA’s rebuttal was to highlight that the Club Financial Control Panel was made up of “financial and legal experts” and that the creation of the CFCB was “principally motivated by a desire to streamline the process”.)

Amongst the Procedural Rules, Article 33 stipulates that decisions of the Adjudicatory Chamber are to be published (subject to redaction to protect confidential information or personal data), which has the effect not just of increasing the transparency of UEFA’s decision making, but also of increasing the transparency of the financial affairs of European club football.

Settlement Agreements

One of the more dramatic changes implemented by the Procedural Rules was the implementation of ‘Settlement Agreements’, which are “aimed at ensuring that clubs in breach of the break-even requirement become compliant within a certain timeframe and are designed to be effective, equitable and dissuasive.”

Settlement Agreements have been described as “basically a plea bargain”. Redolent of the settlement procedures in many competition law or white collar crime regimes, Settlement Agreements are consensual agreements entered into between a party who has breached FFP and the CFCB, which avoid the need for a breach to be referred to the Adjudicatory Chamber (Article 15.1).   Settlement Agreements have been viewed by the CAS as effectively giving clubs a ‘second chance’ to comply with FFP (CAS 2016/A/4692 Kardemir Karabükspor v. UEFA), albeit with more stringent conditions applied.

Settlement Agreements may include sanctions and timeframes for compliance (Article 15.2) and are monitored by the CFCB Chief Investigator (Article 15.4). If there is a breach of a settlement agreement, the matter is then referred to the Adjudicators Chamber.

FFP from 2015

The next major changes to FFP were implemented in the Club Licensing and Financial Fair Play Regulations Edition 2015.

Introduction of Voluntary Agreements 

In contrast to the ex post compliance approach of Settlement Agreements, Voluntary Agreements are an ex ante mechanism for clubs to derogate from the normal FFP standards, with the ultimate aim of complying with the break-even requirement. Voluntary Agreements are defined as being “a structured set of obligations which are individually tailored to the situation of the club, break-even targets defined as annual and aggregate break-even results for each reporting period covered by the agreement, and any other obligations as agreed with the UEFA Club Financial Control Body investigatory chamber” (Edition 2015, Annex XII A.5). They can last for up to four reporting periods (Annex XII A.3).

In order to enter into a Voluntary Agreement, a club must adhere to certain procedural requirements. These include submitting a long-term business plan “based on reasonable and conservative assumptions” (Annex XII B.2(a)).

On the face of it, the concept of the Voluntary Agreements–allowing clubs with new owners to incur debts on the promise of future FFP compliance–sounds like a recipe for sort of financial peril FFP was created to avoid.  However, in order to be allowed to enter into a Voluntary Agreement, there must be put in place “an irrevocable commitment(s) by an equity participant(s) and/or related party(ies) to make contributions for an amount at least equal to the aggregate future break-even deficits for all the reporting periods covered by the voluntary agreement” (Annex XII B.2(c)).

Break Even Limit Increase

Another significant change implemented by the Club Licensing and Financial Fair Play Regulations Edition 2015 was a variation to the quantum of the break even limits in certain circumstances. The limits were increased from €5m to €45m for assessment periods 2013/14 and 2014/15, and €30m for assessment periods 2015/16, 2016/17 and 2017/18  “if it is entirely covered by a direct contribution/payment from the club owner(s) or a related party” (Article 61.2).

This balance between short-term losses, guaranteed in the event of financial failure (per the Voluntary Agreement process) or offset by owner input, against long term sustainability are superficially congruent with the objectives identified by UEFA for its licensing regime, which include “to introduce more discipline and rationality in club football finances; to encourage clubs to operate on the basis of their own revenues; to encourage responsible spending for the long-term benefit of football; and to protect the long-term viability and sustainability of European club football” (Article 2 (c)-(f)).  But this takes a somewhat narrow view of the impact of spending in football. A club’s spending affects not just a buying and selling club in a market transaction for a player’s registration, but affects the overall market in football players.

Inflation in the market for player registrations far outstrips inflation across the broader economy (by one estimate, inflation in football transfer fees runs ten times higher than inflation in the “normal” economy – and those figure were calculated before Paris Saint Germain doubled the record transfer fee with the purchase of Neymar in the summer of 2017. Player wage growth runs at over 10% per annum. Voluntary Agreements and increased owner investment may contribute to this vertiginous inflation. This runs in contrast to some of UEFA’s messaging around FFP. For example, it has previously been stated that FFP was intended to “decrease pressure on salaries and transfer fees and limit inflationary effect”.

Of course, it should be borne in mind that there is nothing inherently wrong with inflation where it is sustainable; but when considered in an environment where capital is accruing to the wealthy elite (top 15 European clubs) at a quicker rate than the rest of the market (see UEFA’s Financial Fair Play Regulations and the Rise of Football’s 1% by van Maren for further analysis), there is a risk of bifurcation of the financial capabilities of football clubs, with inflation marginalising the non-elite.  European clubs have seen revenue growth at over 9% per annum on UEFA’s figures, although since 2009, the average English Premier League club has added “five times more revenue than the average Italian Serie A or French Ligue Un club”. Inflation, if not intrinsically problematic, certainly has the potential to cause problems; and UEFA, in administering and approving Voluntary Agreements, and in weakening its stance on owners offsetting losses, should consider the impact on inflation and stability. Voluntary Agreements and financial input by owners are potentially gateways to the elite level; however, this should not be at the expense of those who do not have wealthy owners or pre-existing wealth.

Perhaps more significantly, there is a normative dimension to the introduction of Voluntary Agreements and the relaxation of financial input from benefactors. The message behind FFP was one of “revolutionising European football”, with then President of UEFA Michel Platini saying that UEFA would “never [be] going back on this.” Quite conversely, the changes brought about by the 2015 Edition of FFP were welcomed with a message of FFP being “eased”. This is disappointing because, on UEFA’s own figures, FFP has had a considerable positive impact on the European football financial landscape. On one view, allowing equity input from owners is a pro-competitive encouragement of exogenous investment; on another, it is rowing back from a positive and successful policy initiative at the expense of those not fortunate enough to have a benefactor owner.

The impact of FFP

In defence of its loosening of the restriction on loss-making, UEFA would doubtless point to the positive impact the FFP has had to date,^[1] which, perhaps, creates financial latitude that once did not exist.

As a part of FFP, the clubs under UEFA’s direct jurisdiction report standardised, audited, financial information. UEFA publishes annual benchmarking reports, which draw upon the information clubs submit. Since the introduction of FFP, there has been a general positive trend in European clubs’ finances.

For example, UEFA’s 7th Benchmarking Report, covering the financial year 2014, showed wage growth to have slowed to its “lowest rate in recent history” at 3%. Overdue payables (essentially debts that clubs owe but have not paid on time) had reduced by 91%. The most recent report published by UEFA, its eight Club Licensing Benchmarking Report, covering the financial year 2015, indicates that clubs “have generated underlying operating profits of €1.5bn in the last two years, compared with losses of €700m in the two years before the introduction of [FFP]”; whereas “Combined bottom-line losses have decreased by 81% since the introduction of [FFP]”.

Of course, there are methodological problems in ascribing the improvement in European clubs’ finances exclusively to FFP when in reality there are a combination of factors at play. However, what we can comfortably say is that there is an evident correlation between FFP and the stabilisation of the football financial landscape.

There is also a second-order effect of FFP at play. UEFA, in its position as the game’s regulator, in introducing FFP, has had a hegemonic influence on the governance of the game at national level.  For example, in England, domestic iterations of FFP have been instituted in the Football League, and the Premier League has introduced its own Short Term Cost Control Measures.

Thus, by setting the tone of sustainability expectations, UEFA has influenced the financial stability of clubs outside of its jurisdiction. This is highlighted neatly in the following passage from UEFA’s eight Benchmarking Report:

“The centrepiece of financial fair play, the break-even rule, may not directly address small and medium-sized clubs with costs and incomes below €5m, but financial fair play has other direct and indirect impacts on these clubs. Direct in that UEFA and the Club Financial Control Body pass their eyes over detailed financial data from all clubs competing in UEFA competitions and in particular take careful, regular note of all overdue payables. And indirect in that financial fair play has resulted in a significantly higher level of scrutiny of club finances and the actions of club owners and directors. In addition, some countries, such as Cyprus, have introduced their own versions of financial fair play, tailored to their clubs and the scale of their financial activities.” 

So, whilst UEFA can legitimately point to the more secure position across the financial landscape as a good reason that Voluntary Agreements or wider economic input from owners will do no harm, it should continue to reflect on the message this loosening of FFP may send to the wider football market.

FFP Exemptions

One area of change for which UEFA should be applauded is in its use of certain exemptions from the FFP ‘break even’ calculation. These include areas such as infrastructure and youth football, both essential to the game’s long-term sustainability. By exempting these areas from the break even calculation, clubs’ owners are incentivised to invest (by equity rather than debt) in the game’s future, without an impact on short-term competitiveness.

More recently (from 2015), UEFA has moved to exclude expenditure on women’s football from the break-even calculation (Annex X C(i). Again, UEFA should be praised for taking positive steps to encourage growth across less wealthy areas of the game.

The Future of FFP after Neymar

Over the summer of 2017, public interest in FFP has reignited. The rules are now becoming synonymous with Neymar and his new club, Paris Saint Germain, after the Brazilian player’s reported €222m release clause was activated, doubling the world record fee for a player transfer.   This move, followed by French player Kylian Mbappe joining Paris Saint Germain from Monaco for similarly large fee, has upset some in the game.

These events pose a significant problem for UEFA. It is not yet known whether PSG are in breach of FFP (and, of course, it is conceivable that they have sufficient financial capabilities to fund the purchases without any breach of the rules); however, the transactions have raised questions, including La Liga President Javier Tebas stating that he believed PSG were guilty of “infringing on UEFA regulations, financial fair play and EU laws”, and Arsenal manager Arsène Wenger saying that “it looks like we have created rules that cannot be respected…there are too many legal ways to get around it.” 

The public grievances around FFP precipitated by PSG’s spending do, to an extent, seem to conflate simply spending large sums of money with breaching FFP. The rules do not prohibit spending large sums on transfers or otherwise; rather, they limit how much debt can be incurred by a club, assessed over a three year rolling period, with only limited equity input from an owner. The rules were not designed to prevent a €222m transfer per se (with the fee amortised across the length of the contract period, as is standard practice in the football industry); rather, they were designed to ensure that any such spending was sustainable, and did not put clubs at risk.

However, FFP is a reactive, not a proactive tool. Clubs report spending after the event; they are not required to seek permission from UEFA to make a capital investment. This ex post approach does perhaps reveal a flaw in managing any egregious short-term infractions that should arise, the impact of which will be felt by other clubs before UEFA, through the CFCB, can have its say.

The broader problem associated with PSG’s spending is one of opacity. PSG is owned by Oryx Qatar Sports Investments, which is an investment vehicle for the state of Qatar. There were contemporary (unconfirmed) reports that the deal would be structured to take place off of PSG’s accounting books, with Neymar being paid the value of his release clause directly for agreeing to become an ambassador to the Qatar World Cup, so that he could in turn pay his own release clause.  If true, this would notionally take the release clause fee off of PSG’s books, but would almost certainly qualify as a related party transaction with the meaning of FFP’s Annex X F and thus remain examinable by the CFCB. Similarly, it was reported that PSG’s loan-come-purchase of Kylian Mbappe was “complex”. While complicated transfer arrangements are to be expected in a game that is going through increasing commercial sophistication, there are evidently some suspicions that PSG are attempting to circumvent FFP (or, more colourfully, ‘peeing in the pool’).

However, UEFA anticipated clubs employing ‘creative’ tactics to superficially comply with FFP, and gave the CFCB jurisdiction to consider “at all times…the overall objectives of these regulations, in particular to defeat any attempt to circumvent these objectives” (Article 72.1). (At this stage, one can only speculate as to what, if any, FFP objectives PSG may have breached, but the CFCB will surely consider Article 2.2 (a) and (c) - (f)).

UEFA has publicly stated that it is investigating PSG’s FFP compliance, saying “The investigation will focus on the compliance of the club with the break-even requirement, particularly in light of its recent transfer activity”. Of course, this should not be particularly surprising given the CFCB annually examines the finances of each club that enters into UEFA competitions under the standard FFP procedure, but it will be interesting to observe how CFCB’s investigation progresses, and, if PSG is found to have breached FFP in letter or in spirit, what punishment is meted out to PSG. 

Whether PSG’s aggressive spending was emboldened by UEFA’s weakening of the more restrictive elements of FFP will remain unknown.  Similarly, one can only speculate as to whether the dilution of FFP, through changes such as the implementation of Settlement Agreements and Voluntary Agreements, came about as a result of legal challenges already brought and defended by UEFA; or whether UEFA is insulating itself from further legal challenges; or whether UEFA is simply altering the rules for the good of the game. As detailed in Part One of this series, the legality of FFP will rest on its proportionality. These changes have moved FFP towards a more flexible, and arguably more proportionate, proposition; but, given the public exposure that PSG’s spending has precipitated,UEFA will surely wish to ensure that FFP is not seen as a paper tiger.

The matter is on UEFA’s agenda. Even before the events involving PSG in the summer of 2017, incoming UEFA president, Aleksander Čeferin, spoke about the possibility of a fixed wage cap and closing the gap between the game’s haves and have nots. Such changes would certainly make FFP more congruent with its name. FFP is not about being ‘fair’ in the sense of being egalitarian or introducing a level playing field. It is a gentle brake applied to the rate of growth in the game, aimed predominantly at reducing long-term loss making and insolvency. Perhaps the rules might have been less controversial from the outset, and might not have been a mechanism for the frustration ventilated by sum following PSG’s purchase of Neymar and Mbappe, if instead of being called FFP, the rules were called ‘financial management rules’, and absolved themselves from the pretence of ‘fairness’.

Alternatively, UEFA could revisit FFP, implementing a genuinely egalitarian set of rules – a hard salary cap, a luxury tax, the abolition of the transfer market, or some combination of those things and others. This would, however, undoubtedly engender its own set of legal challenges, as we have seen with FFP. 

Whilst the challenges to various aspects of FFP have been largely ineffective in defeating FFP (see for example CAS 2016/A/4692 Kardemir Karabükspor v. UEFA; CAS 2016/A/4492 Galatasary v. UEFA; CAS 2014/A/3870 Bursaspor Kulübü Derneği v. UEFA; CAS 2014/A/3533 Football Club Metallurg v. UEFA; CAS 2013/A/3067 Málaga CF SAD v. UEFA; CAS 2012/A/2824 Beşiktaş JK v UEFA; CAS 2012/A/2821 Bursaspor Kulübü Dernegi v. UEFA; CAS 2012/A/2702 Györi ETO v. UEFA ), the rules have, against the backdrop of repeated disputes about their legality, iteratively changed, including a move towards greater liberalisation in respect of equity input into clubs by owners. 

And so UEFA finds itself at a crossroads. FFP, bombarded with legal challenges (which it has to date ridden) has gradually developed and liberalised as financial stability in European football has improved. Now, with the transfer market having escalated, the efficacy of the rules has come into question. UEFA must decide on the path it wishes to take; whether to liberate the market altogether,  whether to institute a truly ‘fair’ system, or whether to continue on FFP’s current centrist ground. Aleksander Čeferin, a lawyer by extraction, is certain to face a legal and political struggle in whichever direction he turns.

^[1] For further discussion on the efficacy of FFP, see Neil Dunbar (2015) "The union of European football association’s club licensing and financial fair play regulations - are they working?" ISSN 1836-1129 http://epublications.bond.edu.au/slej/27

Editor’s Note: Saverio Spera is an Italian lawyer and LL.M. graduate in International Business Law at King’s College London. He is currently an intern at the ASSER International Sports Law Centre. 

This blog is a follow up to my previous contribution on the validity of Unilateral Extension Options (hereafter UEOs) under national and European law. It focuses on the different approaches taken to UEOs by the FIFA Dispute Resolution Chamber (DRC) and the Court of arbitration for sport (CAS). While in general the DRC has adopted a strict approach towards their validity, the CAS has followed a more liberal trend. Nonetheless, the two judicial bodies share a common conclusion: UEOs are not necessarily invalid. In this second blog I will provide an overview of the similarities and differences of the two judicial bodies in tackling UEOs.

The emergence and function of the Portmann criteria

Since their first appearance in a case widely known as the South American Bosman for the impact it had on the whole system of contracts established by the Uruguayan Football Association, the so-called ‘Portmann’ criteria are often referred to in decisions on the validity of UEOs.^[1] In short, these criteria provide that:

1. the potential maximum duration of the employment relationship must not be excessive;
2. the option has to be exercised within an acceptable deadline before the expiry of the current contract;
3. the original contract has to define the salary raise triggered by the extension;
4. the content of the contract must not result in putting one party at the mercy of the other, and;
5. the option has to be clearly emphasized in the original contract so that the player can have full consciousness of it at the moment of signing.^[2]

These five requirements, proposed by Prof Wolfgang Portmann, were meant to represent the standard UEOs had to meet in order to be considered valid and biding upon the players. More precisely, in order not to constitute an excessive self-commitment that would result in a violation of Swiss ordre public.^[3] They emerged in the course of the South American Bosman as Prof. Portmann’s report was presented by Atlético Peñarol in the (unsuccessful) attempt to uphold the validity of the unilateral option the club had used in its employment contracts. From that moment on, the Portmann criteria became a recurrent theme in decisions by the DRC and the CAS. However, these criteria have been used over the years in a rather incoherent fashion and their importance in the assessment of UEOs is not unequivocal.

Thereafter, in its first decision, the DRC used the criteria to assess the validity of an UEO.^[4] But then it drastically drifted away from them. Actually, in the ensuing decisions the DRC did not refer to the five conditions at all. In some instances it limited itself to recall its established jurisprudence finding the validity of UEOs disputable since they give the stronger party in the employment relationship the power to unilaterally extend or terminate the contract.^[5] In another occasion, the DRC expressly dismissed the binding effect of the Portmann report, underlining that it only constitutes a non-binding recommendation.^[6]

Furthermore, interestingly, in the appeal proceedings of the Atlético Peñarol case the CAS did not mention the Portmann report in its evaluation of the UEO. The Panel only referred to it in the part of the award that assessed the question of the applicable law and noted that Prof Portmann’s starting point was radically different from that of the Panel, as he deemed Uruguayan law applicable to the dispute, while the Panel applied Swiss law/the RSTP.^[7] Having said that, the CAS also seems to have departed from its initial approach, but in a rather different way than the DRC. In an early award of 2007, the CAS refused to give too much weight to the Portmann report and focused its reasoning on other circumstances.^[8] Yet, the ensuing awards did not follow suit on this approach. In its more recent awards, the CAS held that the criteria constitute soft guidelines and often de facto relied on them to reach its conclusion on the validity of an option.^[9] In one occasion, the CAS even added to the list of requirements two criteria, “emanating from recent developments in the FIFA DRC and CAS jurisprudence”, namely (i) the proportionality between the extension and the main contract and (ii) the desirable limitation of the number of extensions to one.^[10]

Regarding the relevance of the Portmann criteria, it seems that the only shared trait between the DRC and the CAS is that both have drifted away from their approach. Though, in quite opposite ways. 

Increase in salary as a sine qua non condition for the validity of UEOs

The question of the increase of the player’s salary is considered central, by both the DRC and the CAS, in deciding the validity of UEOs.

In fact, an improvement of the player’s salary is considered by the DRC as a possible ‘validating’ circumstance since the first published decision on the issue.^[11] The FIFA Chamber placed particular emphasis on the necessity to offset the unequal bargaining power that UEOs give to football clubs. To do that, a significant economic gain for the player must be envisaged in the contract as a result of the extension. In the view of the DRC, this is a necessary but sometimes not sufficient condition for the validity of a UEO, since the specification of the financial terms of the renewal in advance “necessarily cannot take into account, neither by the player nor the club, the possible enhancement of the player’s value, and hence earning power, over a two year period”.^[12]

In its awards on the matter, the CAS contends that the player must derive a clear economic advantage from the exercise of the option.^[13] Thus, the increase in salary is the only requirement that is fully embraced by both the DRC and the CAS. It is interesting to note, however, that in only one occasion did the CAS explicitly mentioned that “[e]ven if the financial terms had to be specified in advance, they necessarily take no account of the possible enhancement of a players value – and hence earning power – over a five year period e.g.: if he becomes an international player during that time”.^[14] It is also worth noting that, at least in one award, the CAS concluded that an increase in salary has to be evaluated only in relation to the previous economic conditions of the player’s contract and not in relation to the salary he could earn somewhere else.^[15]

In light of the above, it is safe to conclude that an UEO coming with a substantial increase in salary for the player has good chances to be deemed valid by the DRC and the CAS. To this end, a few additional observations are relevant. Firstly, how much is enough? Unfortunately, no clear guidelines can be derived from the case law. Secondly, it is practically impossible to predict the increase in value of a football player over a long-term period. Consequently, what can be considered a reasonable increase in salary at the signing of the contract might be deemed insufficient a few years later. Lastly, and probably most importantly, this approach might overlook the fact that an increase in salary is not always the only element a footballer takes into account in his career, as sometimes more personal considerations might push a player to move to a different club in another country. For instance family reasons might play a significant role in such a decision. Furthermore, football players might often consider more convenient for the development of their careers to give up on an increase in salary in order to have the chance to move to a club with more playing opportunities. An increase in salary, even substantial, should not be the altar on which a footballer’s fundamental freedom of movement and, ultimately, of choice is sacrificed.

The player’s behaviour

The player’s stance has often been evaluated by the DRC in particular as a concurrent element in determining the validity of an UEO. The main argument is that a certain behaviour of the player, such as keeping training and playing official matches with the club, implies a tacit acceptance of the extension. Once again, the DRC and the CAS are not entirely on the same line. The DRC jurisprudence gives more weight to this aspect, while the CAS has mentioned that particular attention has to be paid to “the player’s conduct during the period leading to the negotiation of the alleged extension clause” only in one single case.^[16]

With regards to the circumstance that the player has played in official matches as a consequence of the extension, the DRC showed a swinging trend. In one instance, it deemed it not relevant.^[17] Yet, in a subsequent decision (the only one by the DRC upholding the validity of an UEO to date), the fact that the player had kept taking part in training sessions and playing official matches for the club after the extension had quite a different impact on the reasoning of the Chamber.^[18] More recently, the DRC stated that the fact that the player trained with the club for a month after the alleged renewal does not imply his tacit acceptance of the unilateral extension.^[19]

The applicable law

As seen in the first part of this blog, each national jurisdiction interprets the validity of UEOs differently. Consequently, the choice of applicable law can play a major role in the outcome of a case, although the issue arises mainly when the dispute is brought before the CAS. The matter is complicated by the fact that CAS panels have a certain degree of discretion in deciding the law applicable to a dispute, and by the circumstance that even when they apply the same law they might reach different conclusions. With regard to the latter point, let us take into consideration two cases in which the CAS has established Greek law as the applicable law. In one occasion the Panel deemed “appropriate to mitigate the letter of Greek law by the spirit of general principles”, as its content concerning UEOs was considered inconsistent with “general principles of labour law”^[20] and consequently dismissed the appeal of the club. In another one, instead, the Panel concluded that the dispute had to be decided according to FIFA Regulations and Swiss law on a subsidiary basis, “with the important exception of any issues related to the Contract […] which shall be decided in accordance with Greek law”.^[21] Therefore, given that in Greece unilateral options allowing clubs to automatically extend employment contracts are legal, the Panel upheld the validity of the clause.^[22]

A radically different approach was taken by the CAS in the Atlético Peñarol case discussed above. In the absence of an express choice of law of the parties, the Panel deemed the FIFA Regulations and, subsidiarily, Swiss Law applicable. It is worth recalling the reasoning of the Panel, as it could pave the way to a reasonable solution for the UEOs issue. The arbitrators noted that the application of art. 187 of the Swiss LDIP gives wide freedom of choice to the parties, who can even require the arbitrators to decide ex aequo et bono, i.e. without any reference to specific State laws. This means that art. 187 LDIP allows, a fortiori, to refer to rules that transcend the particular State laws, such as sports regulations. The Panel stressed that sport is a phenomenon that naturally crosses borders, and thus it is necessary to ensure uniform legal standards. Only if the same terms and conditions apply to everyone who participates in organised sport, is the integrity and equal opportunity of sporting competition guaranteed. In practice, the FIFA Statutes and Regulations provide such uniform rules. Additionally, the arbitrators underlined that the application of Uruguayan law would lead to a result incompatible with the minimum standards of protection of employees provided by Swiss labour law. Hence, the CAS concluded that the Uruguayan system of UEOs is not compatible with the FIFA Regulations. Furthermore, the Panel noted that these options effectively bypass the basic principles of the FIFA regulations, which “very particularly protect the interests of training clubs through training compensation and the solidarity contribution […] It is not possible that this protection of the contents of a contract between clubs and players can be bypassed in order to serve only the interests of one party, in this case the club, which does not itself have to make a commitment. So the Panel considers that the unilateral contract renewal system is not compatible, in its very principle, with the legal framework which the new FIFA rules were designed to introduce”.^[23] In other words, the Uruguayan system seemed to reintroduce, through the backdoor, the system that was abolished with the reforms of the FIFA Regulations 1997, 2001 and 2005.^[24]In such a system the player is bound to a contract negotiated at a moment of his career when he did not have a strong bargaining power. Which is to say, the player is left at the mercy of the club. The arbitrators stressed that only the most talented players can escape this mechanism, when the club receives an important transfer offer for their services.^[25]In that occasion, the player will hardly refuse the transfer knowing that, doing otherwise, he will be bound to the club because of the UEO in his contract.

Conclusions: The way forward

We have seen in part 1 of this blog that we lack a coherent regulatory framework for UEOs at the national level. This second part has also shown that things are not much clearer at the DRC and the CAS, as the two bodies, while agreeing on the existence of certain criteria, take different approaches on the assessment of each of them (except for the increase in salary). Furthermore, the outcome of a case can be heavily dependent on the applicable law. Consequently, the future validity of UEOs is uncertain, given that no uniformity can be found in the CAS jurisprudence.

The uncertainties related to the applicable law issue are manifold. Upholding the validity of national law, although granting some advantages in terms of foreseeability, presents two main drawbacks. First of all for the clubs which draft the contracts and cannot predict to what extent this law will be deemed applicable by the CAS and, consequently, are unable to draft the contract with all the necessary information desirable in respect to UEO clauses.^[26]Secondly, and most importantly, this approach overlooks the fact that football is a global phenomenon, and the transfer market a transnational one, which requires uniform rules at the international level.

The conclusion reached by the Panel in the Atlético Peñarol case is a fair starting point in the quest for more certainty in the matter. The undisputable merit of that award was to clearly highlight (i) the unequal nature of a clause that is accepted by the player at the early stages of his career and (ii) the necessity to have a body of regulations that can be understood and predicted by the entire international football family.[27] Let us conclude, therefore, that only the universal application of a set of regulations, such as the FIFA RSTP, would ensure legal rationality, predictability and, significantly, “the equality of treatment between all the addressees of such regulations, independently of the countries from which they are”.^[28] A fortiori, when at stake is the fundamental freedom of movement and choice of footballers, the need to rely on a uniform body of principles and rules, a lex sportiva, universally applicable without discrimination becomes crucial.

However, applying the FIFA Regulations in a standardised way still leaves a problem unsolved. This body of rules is in fact silent on the very issue of UEOs. FIFA could tackle the issue in a variety of ways, for instance by codifying in the RSTP a revisited version of the Portmann criteria. Suggesting precise reforms to FIFA goes beyond the purpose of this blog, but one thing is sure: in the face of the extreme uncertainty that surrounds the validity of these clauses, having one single body of rules expressly targeting the issue and universally applicable would be of great help to all the parties involved.

[1] The case concerned the contracts of two Uruguayan players, Carlos Heber Bueno Suárez and Christian Gabriel Rodríguez Barotti with the Uruguayan football club Atlético Peñarol. Pursuant to their contracts, the professional services of Bueno and Rodríguez could be extended unilaterally by the club for two years, provided that their salary would increase in accordance with the National Consumer Price Index. At the end of the season, and after being suspended and deprived of the possibility of playing for four months, the players signed for the French club Paris Saint Germain, and refused the club’s unilateral extension. See TAS 2005/A/983 & 984, Club Atlético Peñarol v. Carlos Heber Buen Suárez, Christian Gabriel Rodríguez Barotti & Paris Saint Germain, award of 12 July 2006. In fact, the framework has slightly changed over the last few years in South America. In Argentina, for instance, the 2009 Collective Bargaining Agreement (CBA) n. 557/09, signed by the Association de Futbol Argentino (AFA) and the Union of Amateur and Professional Football Player provides the current guidelines. In this context, contracts of athletes who have reached the age of 21 can be extended once for one year only, provided that a salary increase of 20% is guaranteed as a consequence of the extension. Extension options for players older than 21 shall be considered null and void, even in the circumstance that AFA has registered the contract, and consequently the player is to be declared a free agent and thus free to sign a contract with another club (see Colucci, Hendricks, Regulating Employment Relationships in Professional Football, A Comparative Analysis, European Sports Law and Policy Bulletin 1/2014, 26). See also Juan de Dios Crespo Pérez’s commentary of the case in A. Wild (ed.) CAS and Football: Landmark Cases (2011), 118. 

[2] F. de Weger, The Jurisprudence of the FIFA Dispute Resolution Chamber, 169.

[3] Prof Portmann considered South American law the law applicable to the substance of the matter. Nevertheless, according to the author, in order to be considered valid, the option not only had to be consistent with local employment law, Collective Bargaining Agreements and regulations of the relevant national association, but it also had to respect mandatory rules of Swiss law and Swiss ordre public. Although he considered the principle of parity of termination rights not part of ordre public per se (and, therefore, the circumvention of that right that these clauses entail not problematic in itself), he stressed that an excessive self-commitment of one of the parties to a contract could indeed result in an infringement of Swiss and international ordre public.

[4] In the unpublished decision 12 January 2007 (see F. de Weger, The Jurisprudence of the FIFA Dispute Resolution Chamber, 169), the DRC made reference to the five elements of the Portmann report to conclude that the option was not valid because, among other considerations, the notice period was too short.

[5] See decision 30 November 2007 n. 117707 and decision 7 May 2008 n. 58860.

[6] See decision18 March 2010 n. 310607, where the DRC interestingly pointed out that the inequality derives from the fact that the player, given the circumstances of contractual inferiority existing at the time he signs his first contract, either accepts the contract with the UEO or gives up on playing football with that team.

[7] TAS 2005/A/983 & 984, Club Atlético Peñarol v. Carlos Heber Buen Suárez, Christian Gabriel Rodríguez Barotti & Paris Saint Germain, award of 12 July 2006, para. 66.

[8] CAS 2006/A/1157, Club Atlético Boca Juniors v. Genoa Cricket and Football Club S.p.A., Award of 31 January 2007, para. 16. The Panel had “great difficulty in following Dr Portmann’s reasoning, and in accepting the validity and enforceability of a unilateral option”. The arbitrators deemed more important, instead, to put emphasis on the general assumption that a person, and a fortiori a minor who had just moved with his family to another country, cannot be required to perform a contract for personal services against his or her will.

[9] The CAS held recently that “these criteria may be taken into consideration and are important, but […] they are not absolute rules, the failure of which would determine the absolute invalidity of the option clause”, in CAS 2014/A/3852, Ascoli Calcio 1898 S.p.A. v. Papa Waigo N’diaye & Al Wahda Sprts and Cultural Club, award of 11 January 2016, para. 86.

[10] More precisely, a Panel held “the need to not accord too much weight and value to the Portmann criteria at the expense of the very important specifics and circumstances behind each individual dispute” CAS 2013/A/3260, Grêmio Foot-ball Porto Alegrense v. Maximiliano Gastón López, Award of 4 March 2014, para. 76, see also para. 68-69.

[11] In Decision 22 July 2004, the DRC noted that because the player’s economic conditions remained substantially unaltered in the renewal, the option was invalid.

[12] See Decision 23 March 2006, para 14. In this case, the DRC deemed that a monthly increase of less than € 1.000 of the player’s salary could not be seen as a significant economic gain for the player.

[13] See CAS 2004/A/678, Apollon Kalamarias F.C. v. Oliveira Morais, award of 20 May 2005, para. 21 and TAS 2005/A/983 & 984, Club Atlético Peñarol v. Carlos Heber Buen Suárez, Christian Gabriel Rodríguez Barotti & Paris Saint Germain, award of 12 July 2006, para. 93. See also CAS 2005/A/973, Panathinaikos Football Club v. Sotirios Kyrgiakos, Award of 10 October 2006 and CAS 2013/A/3260, Grêmio Foot-ball Porto Alegrense v. Maximiliano Gastón López, Award of 4 March 2014, para. 77.

[14] CAS 2004/A/678, Apollon Kalamarias F.C. v. Oliveira Morais, award of 20 May 2005, para 21.

[15] See CAS 2005/A/973, Panathinaikos Football Club v. Sotirios Kyrgiakos, Award of 10 October 2006, para. 23. In which the Panel considered inappropriate to compare between the salary of the extended contract from the Greek club and the salary the footballer would have received at a club in the Scottish league (the Rangers FC) since “it is well known that football clubs operating in richer markets are able to offer a higher income to players”.

[16] CAS 2013/A/3260, Grêmio Foot-ball Porto Alegrense v. Maximiliano Gastón López, Award of 4 March 2014, para. 70.

[17] See Decision 13 May 2005. Here the DRC also pointed out the non-decisiveness of the acceptance by the player of a payment of €1,950 after the extension as a result of the new contract.

[18] See Decision 21 February 2006, in which the DRC noted that: (i) the player had waited almost five months after the beginning of the extension to bring the case before the FIFA.

[19] See Decision 31 July 2013.

[20] CAS 2004/A/678, Apollon Kalamarias F.C. v. Oliveira Morais, award of 20 May 2005, para 24. The Panel dismissed the appeal of the club even though its contract with the player seemed to be drafted in conformity with Greek Sports Law, which – pursuant to Law 2725/99 – allows for the unilateral renewal of the contract provided that (i) the overall duration of the contract, including the extensions, does not exceed five years and that (ii) the financial terms are agreed at the signing of the initial contract.

[21] CAS 2005/A/973, Panathinaikos Football Club v. Sotirios Kyrgiakos, Award of 10 October 2006, para.10.

[22] The Panel, which considered “inappropriate to apply substantive Swiss law to the contract as it has no connection whatsoever with Switzerland (para. 8), made reference to the same Law 2725/99.

[23] TAS 2005/A/983 & 984, Club Atlético Peñarol v. Carlos Heber Buen Suárez, Christian Gabriel Rodríguez Barotti & Paris Saint Germain, award of 12 July 2006, paras. 81-83 (the translation is of the author).

[24] Ibid., para. 80.

[25] Ibid., para. 79.

[26] Ibid.

[27] J-S Leuba, R Fox, J de Dios Crespo Pérez, G L Acosta Perez and F m de Weger, ‘Contractual Stability: Unilateral Options’, in A. Wild (ed.) CAS and Football: Landmark Cases (2011), 119.

[28] Ibid.