FIFA’s freshly adopted TPO ban entered into force on 1 May (see our Blog symposium). Though it is difficult to anticipate to what extent FIFA will be able to enforce the ban, it is likely that many of the third-party investors will try to have recourse to alternative solutions to pursue their commercial involvement in the football transfer market. One potential way to circumvent the FIFA ban is to use the proxy of what has been coined “bridge transfers”. A bridge transfer occurs when a club is used as an intermediary bridge in the transfer of a player from one club to another. The fictitious passage through this club is used to circumscribe, for example, the payment of training compensation or to whitewash a third-party ownership by transforming it into a classical employment relationship. This is a legal construction that has gained currency especially in South American football, but not only. On 5 May 2015, in the Racing Club v. FIFA case, the Court of Arbitration for Sport (CAS) rendered its first award involving directly a bridge transfer. As this practice could become prevalent in the coming years we think that this case deserves a close look.

I. Facts and procedure

Fernando Ortiz is an Argentine professional football player who entered into an employment contract with Vélez Sarsfield, valid until 30 June 2012. After the expiration of the contract, Ortiz signed an employment contract with the Uruguayan team, Institución Atlética Sud América on 11 July 2012, valid until 30 June 2017. Institución was playing in the Second Division in Uruguay at that time. A week later, on 20 July 2012, Ortiz was transferred from Institución back to Argentina. Institución and Racing Club, Ortiz’ new club, agreed a transfer fee (which was not disclosed). The first instalment should be made before 24 July 2012. Ortiz’ new employment contract was valid until 30 June 2014. Both transfers were duly registered in the FIFA Transfer Matching System (TMS). First, on 23 July 2012, the Argentine Federation (AFA) provided the Uruguayan Federation (AUF) the International Transfer Certificate (ITC). After the transfer from Institución to Racing, the AUF sent the same paperwork to the AFA on 3 August 2012. At that time, no payments were made.

Meanwhile, in view of the number of similar transfers, AFA and the Argentine Tax Authorities agreed that the players concerned would not be allowed to play in the Argentine league. This resulted in the parties (Institución, Ortiz and Racing) concluding a Rescission Agreement of the transfer contract, stating that they had “nothing to claim from each other”.[1] This agreement was not uploaded at that time in the TMS. On 23 November 2012, the FIFA TMS body sent a letter[2] to Racing asserting that they were not aware of any proof of payment of the transfer fee, and that this transfer could constitute an infringement of the TMS rules. Racing replied[3] by enclosing the rescission agreement and confirming that no payments were to be made. On June 2013, FIFA TMS opened disciplinary proceedings against Racing, claiming a violation of articles 3 and 9.1 of Annexe 3 RSTP[AD1] . In response Racing blamed Ortiz for trying to benefit himself from such operation and argued that the club had a true sporting interest in signing Ortiz and did not receive any economic benefit out of the transfer. On 14 August 2013, the FIFA TMS body submitted the disciplinary proceeding to the FIFA Disciplinary Committee (FIFA DC) for a proper investigation of the facts.

In its decision of 5 March 2014, the FIFA DC analysed the two transfers and concluded that they lacked a sporting objective. Even if, from a formal point of view, the first of the two transfers did not involve Racing directly, the FIFA DC considered, taking into account the chronological unfolding of the transfers, that the transfer of Ortiz to Institución would not make sense (according to the playing level of Institución and Ortiz), if his subsequent transfer to another club, in this case Racing Club, was not already planned. Accordingly, the FIFA DC found that the two “parts of the operation” cannot be considered separate. Hence, the whole bridge transfer scheme was deemed known to all parties involved. Thus, the FIFA DC concluded that Racing was involved in the operations carried out and therefore liable to face sanctions.[4]

Moreover, the FIFA DC drew attention to the effects the rescission agreement should have had in a rational context. Indeed, in a normal constellation, one would have expected Ortiz to return to Institución, instead the fact that he stayed on to play at Racing corroborated the non-sporting interest of the transfer. The FIFA DC considered that the aim of the TMS rules is to create transparency (Article 1 Annexe 3 RSTP) in players’ international transfers. In the view of the FIFA DC, Racing, however, used the TMS fraudulently to give a sporting appearance to such a transfer. Therefore, Racing is found to have infringed Articles 3(1)[5] and 9.1(2)[6] Annexe 3 FIFA RSTP, since the transfer was conducted through the TMS for illegitimate purposes and it did not act in good faith. As a consequence of this infringement, the Argentine club was fined CHF 15,000 and warned in accordance with the FIFA Disciplinary Code.[7] In the same proceedings, the Uruguayan club was sanctioned with a transfer ban for two complete and consecutive transfer periods and a fine of CHF 40,000.

Racing Club decided to appeal the decision to the CAS. The Argentine club based its appeal[8] on the grounds that there is no legal basis in the FIFA Regulations to sanction the club for correctly registering a transfer without a sporting reason in the FIFA TMS system.  

II. Commentary

First, we need to explicate in greater details the functioning and purposes of bridge transfers. Before, tackling the substance of the award rendered by the CAS.

A.    What is a bridge transfer?

As explained by Ariel Reck[9] (who was Racing’s lawyer in the present case), a bridge transfer has three main characteristics:

• A bridge transfer is made for no apparent sporting reason, there is a non-sporting purpose underlying the move.

• Secondly, there are three clubs involved in this triangular structure: on the one hand the club where the player was firstly registered (club of origin); secondly, the so-called ‘bridge club’, which will usually be a club of a lower level than the player involved and the final club of destination, i.e. the club where the player was intended to play for from the beginning. The lack of balance between the player and the bridge club is usually evident.

• The last feature is the short period of time that the player is engaged with the bridge club. Frequently, such a player does not play any game at all with this club.

There are three important reasons why football clubs enter into a triangular agreement that constitutes a bridge transfer:

1. The bridge transfer helps to reduce the cost of training compensation or payments to be made under FIFA’s solidarity contribution mechanism.

2. The bridge transfer allows the use of a club to circumvent the FIFA rule that prohibits TPO.[10]

3. The bridge transfer is used to evade taxes.

1.   Reducing training compensation

As far as the reduction of the value of the training compensation is concerned, it should be noted that there is already an award dealing with this matter, though without making an explicit reference to the notion of “bridge transfer”. In 2009, CAS rendered an award in a dispute between MTK Budapest and FC Internazionale. In this case, Inter was interested in signing a Hungarian player from MTK Budapest. After negotiations between the two clubs broke down, the player entered into a professional contract with a Maltese club. Yet, after nine days at the Maltese club, the player was transferred to Inter. According to the FIFA’s training compensation rules[11], if the player would have been transferred directly from MTK Budapest to the Italian club, the payable amount to the Hungarian team, for the three seasons that the player was trained by MTK Budapest, would have been €160,000.[12] The Panel, found this transfer to be irrational and considered that the training efforts of MTK Budapest should in any case be rewarded. Therefore, it decided that Inter should pay a training compensation to the Hungarian team.

On the other hand, by means of a comparable manoeuvre, the solidarity mechanism can also be manipulated. The RSTP provisions on the solidarity mechanism are only applicable to international transfers (Article 1(1) RSTP). The transfers between two clubs of the same association are “governed by specific regulations issued by the association concerned” (Article 1(2) RSTP). Thus, one can reduce the amount of the solidarity contribution via a bridge construction. The first (international) transfer is concluded for a low amount, which would be subject to the solidarity contribution. Later, a second (national) transfer is concluded for the real amount.[13]

2.   Circumventing the FIFA TPO ban

Another purpose for the use of bridge transfers is to circumvent the FIFA rules prohibiting agents (or intermediaries) or other third parties to acquire economic rights from players. This is “a way to anchor a players economic rights to a club”[14] instead of a mere third party (agent or a company). By controlling a club, the former third-party owners are able to continue investing in players while making sure that this investment is at least formally in conformity with the RSTP. With this mechanism, a third party, who controls a club (a bridge club), also enjoys the legal protection awarded by the FIFA RSTP to clubs, for example, in case of breach of the contract without just cause (17 RSTP).

 3.   Reducing Taxes

Bridge transfers are also designed to reduce taxes or hide the financial beneficiary of the amounts.[15] Bridge clubs, in these cases, are based in “tax heavens”. Consequently, two transfers need to be concluded: One from the team of origin to the bridge club, and the other one from the bridge club to the club of destination. If the bridge transfer is made with the sole purpose of reducing taxes, the fee for the first transfer would be low because this transfer fee is highly taxed. The second transfer would be concluded for a higher amount and the fee will be taxed at a low rate.

Secondly, a bridge transfer could also be used to disguise a compensation for a player (this mechanism is generally used by free agents) or payments to third parties. Usually, players who move to a new club as free agents tend to receive higher salaries than players who have been transferred to another club while still on a contract with their old club. In order to prevent the payment of high income taxes, a player and a bridge club agree to share the transfer payment made by the club of destination. Thus, the bridge club is rewarded for taking part in the bridge transfer; this reward is usually limited to a small share of the total transfer sum.[16]

The third alternative is the configuration at play in the Racing case. In Uruguay, clubs are considered cultural institutions and according to the Article 69 ‘Constitución Nacional’ (National Constitution), they are exempted from paying taxes, even on transfers of players. The clubs take the legal form of either ‘Sports Association’ or ‘Sociedad Anónima Deportiva’ (Public limited sports company), the latter being considered a cultural institution as well. A recent Uruguayan judgment[17] extended the tax exemption to the ‘Socidades Anónimas Deportivas’. However, since bridge transfers have no sporting interest and are aimed at an economic profit derived from reducing the tax burden, the Uruguayan court also held that bridge transfers are not to be tax exempted.  

B.    The Racing case: FIFA’s interpretative bridge too far

1.     The argument of the parties

Racing Club argued in front of CAS that neither Article 3(1), nor Article 9.1(2) of Annexe 3 FIFA RSTP could constitute a sufficient legal basis to impose sanctions in case of a bridge transfer. Basically, “neither the Regulations nor the TMS generates a new substantive law”.[18] No provision states that transfers with a purely economic purpose violate any FIFA provision, which “precludes any sanction based on such concept”.[19] Racing Club also pleaded the ‘principle of estoppel’. As neither FIFA nor the FIFA TMS have sanctioned bridge transfers in the past, Racing Club is of the opinion that the FIFA DC is estopped from sanctioning them in the case at hand.

FIFA recognises that “although (the FIFA regulations) are not applicable to the present matter, (they) present an unambiguous view of what falls within the scope of the Regulations in general terms”.[20] The body argues that this loophole might be covered by the association’s usual practice or, if not, by the rules that they would lay down if they were acting as legislators. Also, FIFA argues that the FIFA Disciplinary Code (FDC) has to be read in accordance with the language used, the grammar and syntax of the provisions, the historical background and the regulatory context. In other words, FIFA pleads that the Panel must sanction the club interpreting the FIFA rules by analogy, if the wording of articles 76 FDC[21] and 62 FIFA Statutes[22] in connection with the TMS rules invoked is not sufficient to ground the decision of the FIFA DC.

2.     The decision of the Panel

In the view of the Panel, the FIFA DC was competent to render a decision in this matter. However, this decision must be grounded on a legal basis found in the FIFA regulations. The key question in the present case is whether Articles 3(1) and 9.1(2) Annexe 3 FIFA RSTP can constitute such a legal basis.

Therefore, taking into account that Racing was sanctioned for having violated the provisions of Annexe 3 by having entered untrue or false data and/or having misused the TMS for illegitimate purposes in bad faith by concluding a “bridge transfer”, the Panel must decide whether the transfer breached these provisions, and if it did so, whether the sanction is proportionate according the TMS rules.

The Panel considers that it is “undisputed that the present case involves a transfer structure which, […], is to be considered as a “bridge transfer”.[23] The Panel considers that Racing Club could not ignore that it was involved in a bridge transfer and was not acting in good faith when arguing that the transfer via Institución was conducted exclusively on the basis of a sporting interest. However, this does not imply per se that Racing acted in bad faith as far as the TMS registration of the Player’s transfer from Institución to Racing is concerned.[24] Indeed, FIFA had to satisfy its burden of proof and demonstrate to the comfortable satisfaction of the Panel that Racing Club had entered untrue or false data and/or misused the TMS for illegitimate purposes. In this regard, the Panel finds that “insufficient evidence is available to prove that the Appellant must be assumed not to have acted in good faith in connection with Player’s transfer registration in the TMS”, as “it has not been proven that the Appellant has registered misleading or false information in the TMS”.[25]

If FIFA is to outlaw the recourse to bridge transfers it must do so in an express fashion. In other words, “the parties involved, in conformity with the principle of legality, shall be provided with specific guidelines in order to know how to act when international transfers of players take place”.[26] Critically, “the lack of such clear and specific set of rules does not justify, in the eyes of the Panel, the “secondary use” of the TMS rules for these purposes”[27]. The principle of legality implies that a sanction must be based on a previously existing legal rule. The CAS had emphasized this principle at various instances in its earlier jurisprudence.[28] Consequently, the Panel found that the “bridge interpretation” used by the FIFA DC to sanction Racing for taking part in a transfer construct qualified as a bridge transfer was going too far and could not be followed. In short, “the current TMS rules represent neither an appropriate nor an effective tool for combating and/or sanctioning bridge transfers”.[29] Hence, the arbitrators decided to reduce the sanction imposed to a mere reprimand.

This is not to say that the Panel endorses the recourse to bridge transfers. Instead, it clearly states that it “concurs entirely with the Respondent (FIFA) that measures should be applied against bridge transfers when such transfers are conducted for the purpose of engaging in unlawful practices, such as tax evasion, or to circumvent the rules concerning, for instance, the payment of training compensation or solidarity contributions, or to assure third party's anonymity in relation to the relevant authorities”.[30]

Yet, the basic rule of law principle requiring that FIFA must first devised clearly positivized rules on the basis of which it can then adopt the required sanctions must be respected. This is a bold move by the Panel in light of the bad reputation of bridge transfers. FIFA, as any public or private authority, cannot free itself from the duty of acting in the framework of the regulations it has adopted. The decision is an important reminder of the limits faced by the discretionary power of International Sports Governing Bodies when CAS Panels review their disciplinary decisions. These Bodies do not have an absolute discretion to exercise the disciplinary power that they derive from their statutes. This power is checked by reference to the same legal principles restricting State power in a national context. Thus, it is the duty of FIFA to make sure that it disposes of an appropriate legal basis to act. Consequently, in the (near) future, instead of jumping an interpretative bridge too far, it is advisable that FIFA adopts specific rules to tackle the potential ethical and legal challenges posed by the surging use of bridge transfers.

[1] CAS 2014/A/3536 Racing Club Asociación Civil v. FIFA, paragraph 2.9

[2] Ibid, paragraph 2.10

[3] Ibid, paragraph 2.13

[4] Ibid, paragraph 2.19

[5] “All users shall act in good faith.”

[6] “Sanctions may also be imposed on any association or club found to have entered untrue or false data into the system or for having misused TMS for illegitimate purposes.”

[7] Articles 10.c) and 15 for the fine and Articles 10.a) and 13 for the warning.

[8] CAS 2014/A/3536 Racing Club Asociación Civil v. FIFA, paragraph 7.2.2

[9] World Sports Law Report – April 2014, by Ariel Reck.

[10] CAS 2014/A/3536 Racing Club Asociación Civil v. FIFA, paragraph 7.3.2(o)

[11] Article 20 and Annexe 4 FIFA Regulations on the Status and Transfer of Players.

[12] CAS 2009/A/1757 MTK Budapest v. Internazionale Milano, paragraph 24.

[13] Ariel Reck, “What is a ‘bridge transfer’ in football”.

[14] Ibid.

[15] Ibid.

[16] “El otro triángulo de las Bermudas: los pases fantasmas a Uruguay y Chile”, 18 August 2012, Perfil.com

[17] Tribunal Contencioso Administrativo (Uruguay), fallo no. 301, 16 abril 2015.

[18] CAS 2014/A/3536 Racing Club Asociación Civil v. FIFA, paragraph 7.2.2.d)

[19] Ibid.

[20] CAS 2014/A/3536 Racing Club Asociación Civil v. FIFA, paragraph 7.3.2.k)

[21] “The FIFA Disciplinary Committee is authorised to sanction any breach of FIFA regulations which does not come under the jurisdiction of another body.”

[22] “1.The function of the Disciplinary Committee shall be governed by the FIFA Disciplinary Code. The committee shall pass decisions only when at least three members are present. In certain cases, the chairman may rule alone. 2. The Disciplinary Committee may pronounce the sanctions described in these Statutes and the FIFA Disciplinary Code on Members, Clubs, Officials, Players, intermediaries and licensed match agents. 3. These provisions are subject to the disciplinary powers of the Congress and Executive Committee with regard to the suspension and expulsion of Members. 4. The Executive Committee shall issue the FIFA Disciplinary Code.”

[23] Ibid, para.9.11

[24] Ibid, par. 9.14

[25] Ibid, para.9.15

[26] Ibid, par. 9.18

[27] Ibid.

[28] "In the Panel’s opinion, this provision of the Olympic Charter is to be properly read in accordance with the “principle of legality” (“principe de légalité” in French), requiring that the offences and the sanctions be clearly and previously defined by the law and precluding the “adjustment” of existing rules to apply them to situations or behaviours that the legislator did not clearly intend to penalize. CAS arbitrators have drawn inspiration from this general principle of law in reference to sports disciplinary issues, and have formulated and applied what has been termed as “predictability test”. Indeed, CAS awards have consistently held that sports organizations cannot impose sanctions without a proper legal or regulatory basis and that such sanctions must be predictable. In other words, offences and sanctions must be provided by clear rules enacted beforehand." CAS 2008/A/1545 Andrea Anderson, LaTasha Colander Clark, Jearl Miles-

Clark, Torri Edwards, Chryste Gaines, Monique Hennagan, Passion Richardson v. International Olympic Committee (IOC), award of 16 July 2010, para.30. See also CAS 2011/A/2670 Masar Omeragik v. Macedonian Football Federation (FFM),  award of 25 January 2013, para.8.13.

[29] Ibid. Para.9.19

[30] Ibid, para.913

Editor’s note: Thomas Terraz is a third 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 surge of e-sports has stimulated a lively discussion on the essential characteristics of sport and whether e-sports, in general, can be considered a sport. However, one should not overlook the fact that e-sports encompass a broad range of video games that fundamentally differ from one another. Thus, as one commentator recently underlined, “the position of video games and the e-sport competitions based on them should be analysed on a case-by-case basis.”[1] In this spirit, this blog aims to provide a concise analysis of one of these e-sports, League of Legends (LoL), and one of its main competitions, the League of Legends European Championship (LEC), to assess whether it could be considered a sport in the sense of EU law. The LEC offers a fascinating opportunity to examine this issue especially since the previous European League of Legends Championship Series (EU LCS) was rebranded and restructured this year into the LEC.

2.     What is League of Legends and the LEC?

At the time of writing, LoL released nearly a decade ago by Riot Games (a game developer based in the USA) and rapidly became one of the most played video games in the world due in part to its free to play business model. This means that anyone can download and play LoL on their computer without ever having to pay anything. In-game microtransactions exist but do not provide any competitive advantage. The game itself involves two teams of five players who each control a ‘champion’, which are characters in the game that each possess unique abilities. A team only wins when it has destroyed the enemy base (‘nexus’). The game is not only a popular video game, but it is a popular e-sport. The most recent world championships finals attracted 99.6 million unique viewers. While these numbers are greatly due to its popularity in China and South Korea, there is also a sizeable European viewership of LoL. For example, the LEC regular season matches have reached a record-breaking 355,000 concurrent viewers in its 2019 spring competition.

The LEC is LoL’s highest level of European competition and is owned and organised by Riot Games who establishes and enforces the rules which apply to the teams participating in the LEC. Consequently, Riot Games is truly at the apex of professional LoL in Europe by setting both the in-game parameters (the rules of the game) and the regulations that govern its competitive play. As explained earlier, Riot Games restructured and rebranded its previous European competition, EU LCS, into the LEC. While previously the EU LCS was characterised by a pyramid structure with a promotion and relegation system familiar to the European sports world, the LEC introduced a franchise model to follow its sibling competition in North America, the League Championship Series (LCS). The LEC itself is a limited liability company registered in the Republic of Ireland as League of Legends European Championship Limited.[2] The LEC buy-in fee for teams already in the EU LCS was reportedly set at 8 million euros and 10.5 million euros for those outside the EU LCS. Additionally, big brands such as KIA, Shell, Foot Locker and Red Bull sponsor the LEC and are featured during the broadcast. Besides being produced and diffused weekly by the official Riot Games English broadcast team in a professional studio in Berlin on Twitch (an online video game livestreaming service) and YouTube, the LEC partners with other official broadcasters who provide coverage of the matches in other languages (French, Spanish, Polish, German, Italian). Nevertheless, before examining the LEC’s position under EU law, a review of the broader arguments on the fundamental traits of sport will contextualise the Court of Justice of the European Union’s (CJEU) interpretation of the concept of sport.

3.     Is LoL played in the LEC a sport competition?

The academic discourse on the definition of sport has provided a plethora of elements and conditions for an aspiring sport to meet in order to be considered a ‘real’ sport. Needless to say, this blog will not be able to address all of them. However, the characteristics identified by Suits and elaborated by Jenny et al. and Abanazir are a good starting point for this brief review.[3] Suits explains that sports are in essence games that require skill, where the skill requires physicality, that the game have a wide following, and that this following have a certain level of stability. Abanazir delved into the concept of stability in the e-sports context by explaining institutionalisation’s central role in achieving permanence.

On the first requirement, there is very little room to argue that professional LoL does not require a great amount of skill. Suits explains that games of skill provide ‘unnecessary obstacles’ (in relation to daily life) “to realize capacities not otherwise realizable” that do not rely on pure chance.[4] Playing LoL is not in any way a necessary part of human life, yet many players practicing LoL play to refine and improve their mechanical skill (the physical element of the game, e.g. muscle memory and reflexes). Chance sometimes plays a role in LoL, but it is rarely a decisive factor in determining the outcome of a competitive match. Generally, Riot Games has taken steps over the years to limit the elements of pure luck in its game.

The role of physical motor skills in e-sports has been explained in detail by van Hilvoorde and Pot, and this blog will not dive into the arguments on whether actions taken in a video game can be considered taking place in the ‘real’ world.[5] Assuming that it does, the skill required in LoL is intrinsically connected to its physicality. LoL is played on a computer with a mouse and a keyboard. High level play requires precise movement of the arm, wrist and/or hand to most effectively control one’s character with the mouse. Additionally, the clicks and inputs registered by one’s fingers on the mouse and keyboard must be timed precisely and with enough practice these movements become muscle memory. The classic example of a game that does not require this sort of physicality is chess because the manner in which one moves a chess piece from a to b does not affect the result of the game. On the other hand, LoL demands precise and timed movements of the player’s arms, wrists, and/or fingers to be played optimally. One can be a LoL strategic genius but without a sufficient level of mechanical skill, it is impossible to become a professional LoL player.

Next, a large following is probably the easiest criteria for LoL and the LEC to fulfil. Between the large viewership that watch the LoL events online and the thousands of spectators that come to watch the championships live, there is very little doubt that LoL and the LEC have a wide following at the moment. However, this point leads into the next element which arguably may be the hardest criteria for it to satisfy in the long term: stability.

Video games and consequently, e-sports, generally reach a point where they have achieved their max popularity and eventually begin to lose players and viewers. Often times, this is the result of newly released video games pushing older and ‘outdated’ games out of the spotlight. LoL has remained at the forefront of e-sports for nearly a decade and there is little suggestion that this will change in the near future. Part of this is Riot Games’ continued support of LoL by regularly updating the game. Updates are released nearly every other week and can range from graphical improvements, balancing the game to ensure the viability of new strategies, the introduction of new champions (currently 143 champions) and tweaks that improve the way the game runs on the computer. Abanazir describes that changes such as these “present a double-edged sword” because while they keep the game fresh for players, they can result in drastic changes to the best strategies (meta) to win the game.[6] Thus, professional teams and players must continually adapt their play to conform to the meta. Nevertheless, updates have never fundamentally changed the goal and overall ‘rules’ of the game. Professional LoL is always two teams of five players, each controlling one champion, aiming to destroy the enemy nexus.

From an outsider’s point of view, it may seem that the constant flux of the meta would truly damage any of LoL’s claim to stability. However, in this context, it is imperative to highlight the institutionalisation of the LEC. Institutionalisation describes the appearance of “standardisation of rules, the formalisation of learning of the games, the development of expertise and finally the emergence of coaches, trainers, officials and governing bodies.”[7] The very fact that the meta often changes have pushed professional teams to hire analysts that review the team’s play and are constantly searching for new and creative ways to play LoL. Additionally, all professional teams have at least one coach who not only define the team’s strategy before each game, but also ensure that players observe strict practice schedules. During LEC matches, referees (Riot Games employees) are always present in order to ensure that the LEC rules are observed, which greatly lends to the idea of a ‘standardisation’ of the rules.[8] In fact, Riot Games directly state that the creation of the LEC Rulebook is to help “unify and standardize the rules used in competitive play.”[9] From this outline, there are many indications that the LEC and LoL have many of the characteristics of a sport and currently have achieved a certain amount of stability and institutionalisation. The true test will be whether these structures continue to last as they have been developed and implemented over the past eight years.

4.     A Sport under EU Law?

Recently, the Court of Justice of the European Union (CJEU) ruled on whether the English Bridge Union could benefit from a sports exemption under the VAT Directive and in doing so examined the concept of sport under that Directive.[10] Furthermore, in this case, Advocate General (AG) Szpunar provided an enlightening opinion to the Court examining the concept of sport in the context of the VAT exemption.[11] Both provide a good opportunity to infer how the Court would perhaps go about determining whether the LEC is a sport competition under EU law. This being said, the sport exception in the current VAT Directive would not apply to the LEC since Article 132 (1) (m) applies only to services provided by non-profit organisations. Nonetheless, should League of Legends European Championship Limited eventually restructure into a non-profit, it would not be far-fetched to imagine a situation in which it would seek to have VAT reimbursed from authorities under a sports exception in the future. After all, Riot Games has repeatedly stated that it does not make a profit on its e-sport activities.[12]

The AG’s opinion began by explaining that the concept of sport in the exemption should be “interpreted in a narrow manner, while bearing in mind the purpose and objective of the exemption.”[13] From this it is clear that the analysis of the concept of sport differs depending on the applicable provision, which could mean that the LEC could be considered a sport competition under one provision and a purely economic activity in another context. The AG goes on to identifying elements which preclude an activity from being considered a sport and states that “where a physical element is not necessary, sport is defined by competition and the fact that equipment is provided by not just one supplier -  which excludes activities without a broad basis in civil society, such as commercial products in the market place, designed by firms for pure consumption (for instance video games).”[14] If this interpretation of the concept of sport had been endorsed by the CJEU, it would have constituted a tremendous obstacle for the LEC. Indeed, if the ‘equipment’ also encompasses the game itself, it is impossible to argue that Riot Games does not hold a monopoly over the supply of LoL. Moreover, Riot Games has made and continues to support LoL in order to make money. In analysing this opinion, Abanazir explains the core issue well: “e-sport competitions based on video games created for purely consumption purposes and organised by persons aimed to profit from these activities may find themselves out of the scope as they are perceived to be devoid of social function.”[15] Indeed, it can seem difficult for the LEC and LoL to argue that it has a deeper ‘social function’ but perhaps this requirement might not be completely insurmountable. An argument could be made that the e-sports aspect of LoL is not only a commercial product made for pure consumption especially because LoL is a free to play game, and Riot Games does not seem to be making any profit in its e-sport related activities. Riot Games and the LEC have also taken steps to enhance the social function of LoL by investing in regional leagues to develop local talent.

In its ruling on the Bridge case, the CJEU sidelined the AG’s approach and decided to focus on a physicality requirement. The Court, in examining the specific VAT provision, found that sport must be “characterised by a not negligible physical element,” and the fact that an activity has elements of competition, professionality and organisation were not deemed sufficient to argue that the activity is a sport for the VAT exemption.[16] Physicality was the central criteria in the CJEU’s interpretation of the concept of sport, but in doing so, it did not give any further clarity as to the threshold of physicality required for an activity to benefit from the VAT sport exemption. It has already been contended above that LoL does have a clear physical element which is intrinsically connected to the game’s skill, yet the question remains whether the physicality would be considered more than negligible by the CJEU.

In summary, if LoL and the LEC were to be examined under the VAT Directive sport exemption, it would be confronted with several challenges. The approach endorsed in the AG’s opinion would have been the most problematic since LoL is mainly a commercial product designed to attract consumers and ultimately profit a private company. However, the CJEU chose to focus its interpretation of the concept of sport on a physicality criterion. This decision may give the LEC a wide enough window to argue that the fine motor skills involved in LoL are enough to fulfil this condition.

5.     Conclusion

In its current form, the LEC would not be able to benefit from the sport exemption in the VAT Directive, but this is just one provision of EU law, and there could be other opportunities where it could attempt to claim to be a sport. In the meantime, this gives an opportunity to Riot Games to continue to develop and emphasise the social function of its e-sports competitions, which might entail building a not-for-profit entity to run the competition and to strengthen the redistribution of economic gains to the grassroots. In any case, LoL and the LEC share many characteristics with established sports, but it remains to be seen if this will be enough to boost its recognition as a ‘real’ sport in law and society.

[1] Cem Abanazir, ‘E-sport and the EU: the view from the English Bridge Union’ (2019) International Sports Law Journal 102.

[2] ‘LEC Rules’ (LoLEsports).

[3] William Morgan, Ethics in Sport (3rd edn, Human Kinetics 2018) ch 1: Elements of Sport by Bernard Suits; Seth Jenny et al., ‘Virtual(ly) Athletes: Where eSports fit within the definition of “Sport”’(2016) Quest 1; Cem Abanazir, ‘Institutionalisation in E-Sports’ (2019) Sport, Ethics and Philosophy 117.

[4] Morgan (n 3) ch 1.

[5] Ivo van Hilvoorde and Niek Pot, ‘Embodiment and fundamental motor skills in eSports’ (2016) Sports, Ethics and Philosophy 14.

[6] Abanazir (n 3).

[7] Jenny et al. (n 3); Abanazir (n 3).

[8] See LEC Rulebook Art. 8.15.

[9] LEC Rules (n 2).

[10] Case C-90/16 The English Bridge Union Limited v Commissioners for Her Majesty’s Revenue & Customs ECLI:EU:C:2017:814.

[11] Case C-90/16 The English Bridge Union Limited v Commissioners for Her Majesty’s Revenue & Customs ECLI:EU:C:2017:814, Opinion of AG Szpunar.

[12] Steven Asarch, ‘“League of Legends” cuts esports budget, can Riot Games bounce back?’ (Newsweek, 28 August 2018); Derrick Asiedu head of Global Events at Riot Games confirmed this in a Reddit post: “We’re a long way from breaking even (revenue minus cost equalling 0)”.

[13] English Bridge Union Opinion (n 11) para 21.

[14] English Bridge Union Opinion (n 11) para 38.

[15] Abanazir (n 1).

[16] English Bridge Union (n 10) para 19, 25.

Editor’s note: Tomáš Grell comes from Slovakia and is currently an LL.M. student in Public International Law at Leiden University. He contributes also to the work of the ASSER International Sports Law Centre as a part-time intern.

This is a follow-up contribution to my previous blog on FIFA's responsibility for human rights abuses in Qatar published last week. Whereas the previous part has examined the lawsuit filed with the Commercial Court of the Canton of Zurich ('Court') jointly by the Dutch trade union FNV, the Bangladeshi Free Trade Union Congress, the Bangladesh Building and Wood Workers Federation and the Bangladeshi citizen Nadim Shariful Alam ('Plaintiffs') against FIFA, this second part will focus on the Court's ruling dated 3 January 2017 ('Ruling').[1] 

Before embarking on a substantive analysis of the Ruling, it is worth recalling the Plaintiffs' claims. First, the Plaintiffs requested the Court to order FIFA to redress the ongoing human rights violations by pressing the responsible Qatari authorities to abolish the controversial kafala system and ensure that human rights and fundamental freedoms of migrant workers are preserved ('Claim 1'). Alternatively, they asked the Court merely to declare the unlawfulness of those human rights violations ('Claim 2'). As regards the monetary compensation, the Bangladeshi worker Nadim Shariful Alam sought damages of USD 4,000 and a satisfaction amounting to CHF 30,000 ('Claim 3').[2] The present blog attempts to provide a clear overview of the basis on which the Court rejected the Plaintiffs' claims and to draw a few concluding remarks therefrom.

The Court's reasoning 

The Court considers at the outset of the Ruling that the case at hand immediately proves to be ripe for a decision.[3] Therefore, FIFA had not been invited by the Court to express its views before the Ruling was issued. Pursuant to the Swiss Code of Civil Procedure ('ZPO'), a court shall verify ex officio the fulfilment of the relevant procedural requirements[4], including but not limited to unambiguity of claims[5] and jurisdiction ratione materiae.[6] The following subsections of this blog will take a brief look at how the Court appraised these two procedural requirements.

Unambiguity of the Plaintiffs' claims 

Should a certain claim be considered unambiguous in line with Swiss rules on civil procedure, it needs to be enforceable[7] and sufficiently specified.[8] In respect of Claim 1 (i.e. to oblige FIFA to press the competent Qatari authorities), the Court states that such claim would not be enforceable, since ''anyone who merely exerts pressure on something does not redress any susceptible ills.''[9] The Court is firmly convinced that only the sovereign State of Qatar is empowered to bring about a direct change in the country's human rights situation. In addition, the Court finds Claim 1 to be vague, because it does not specify the Qatari authorities to which FIFA should turn in order to ameliorate the humanitarian conditions for World Cup-related migrant workers.[10]

In respect of Claim 2 (i.e. to declare the illegality of the respective human rights violations), the Court is of the opinion that it does not meet the requirement of being sufficiently specified either. In particular, the Court argues that the Plaintiffs did not precisely identify what part of FIFA's conduct should be declared unlawful. According to the Court's line of reasoning, if Claim 2 were to be admitted, this would essentially make it impossible for FIFA to defend itself.[11] 

Jurisdiction ratione materiae     

Based on the above, the Court considers Claims 1 and 2 inadmissible on account of their ambiguity and does not analyse whether it may exercise jurisdiction ratione materiae over these claims. Nevertheless, in obiter dicta comments, it indicates that Claim 1 is more likely to fall within the ambit of public law.[12] More importantly, the Court does not rule out that a decision requiring a private association (i.e. FIFA) to interfere in domestic affairs of a sovereign State (i.e. Qatar) could be potentially deemed unlawful[13], and that such a decision would consequently negate the Plaintiffs' legitimate interest.[14]

Given that Claim 3 (i.e. Mr. Alam's request for monetary compensation) is clearly unequivocal, the Court proceeds to determine whether it has subject-matter jurisdiction to entertain such claim. The Commercial Courts in Switzerland are endowed with jurisdiction ratione materiae, insofar as a commercial dispute within the meaning of Article 6 (2) ZPO is concerned. A dispute is classified as commercial in accordance with the said provision, if both parties are registered with the Swiss Commercial Registry or an equivalent foreign registry and at least one of them exercises a commercial activity. Article 6 (3) ZPO further clarifies that in a situation where only the defendant is registered with the Swiss Commercial Registry or an equivalent foreign registry, the claimant is free to choose between the Commercial Court and the ordinary court.

Applied to the case at hand, Mr. Alam relies on Article 6 (3) ZPO, since he does not raise Claim 3 as a tradesman registered either with the Swiss Commercial Registry or an equivalent foreign (Bangladeshi) registry.[15] In this regard, the Court also notes that Mr. Alam is not engaged in any kind of commercial activity.[16] Perhaps surprisingly, the question of whether FIFA exercises a commercial activity in terms of Article 6 (2) (a) ZPO turns out to be less straightforward. Although FIFA generally conducts significant commercial activities, the Court underlines that ''the exercising of an alleged power to influence the political system and legal order of a foreign State and/or the neglect of such influence cannot – even interpreting the term broadly – be regarded as a commercial activity.''[17] Consequently, the Court concludes that, in the absence of a commercial dispute between Mr. Alam and FIFA, it is precluded from adjudicating on Claim 3.[18]

It follows from the above that the Court draws a rigid demarcation line between what it considers as being FIFA's commercial activities and its policy influence vis-à-vis World Cup-hosts. However, in practice, a large share of FIFA's revenue comes from FIFA-organized football tournaments, the most prominent being by far the FIFA World Cup. FIFA's Financial and Governance Report 2015 indicated that, insofar as the financial year 2015 is concerned, event-related revenue amounted to 85 % of FIFA's aggregate revenue (USD 973 million out of USD 1,152 million).[19] Especially the sale of broadcasting rights for the FIFA World Cup constitutes an irreplaceable source of FIFA's funding. Moreover, the practice shows also that FIFA is used to compel World Cup-hosts to modify their domestic laws for the benefit of tournament's sponsors, a textbook example thereof being the well-known 'Budweiser Law' which has already been discussed in the first part of this blog. Hence, it seems that FIFA's commercial activities and its policy influence vis-à-vis World Cup-hosts are much more intertwined in reality than envisaged by the Court.   

A way forward

Based on the aforementioned reasons, the Court dismissed the Plaintiffs' lawsuit in its entirety. The Plaintiffs were entitled to challenge the Ruling before the Swiss Federal Court within 30 days of its delivery.[20] For the time being, it remains unclear to us whether the Plaintiffs availed themselves of the right to appeal the Ruling or not.

It should be emphasized that the Ruling in question does not imply that FIFA generally cannot be held accountable for human rights abuses linked to the World Cup in Qatar. The Court rejected the Plaintiffs' claims on grounds of inadmissibility and lack of jurisdiction, without pronouncing itself on the merits of the case. In particular, the Court points out that the Plaintiffs' claims, as they were formulated, would not be enforceable, because FIFA is allegedly not in a position to force Qatar to amend the widely criticised labour laws.[21] That being said, the Court arguably turns a blind eye to the ever-increasing power of non-State actors in contemporary international relations.

Following the Court's line of reasoning, the only feasible way for World Cup-related migrant workers (and trade unions acting on their behalf) to pursue effective legal redress in Switzerland is to claim damages based solely on the illegality of FIFA's decision to select Qatar as World Cup-host. An affirmative response given by the Court to such claim would undoubtedly encourage hundreds of other migrant workers currently residing in Qatar to follow the same path. Nonetheless, absent an explicit legal obligation on the part of FIFA to press the relevant Qatari authorities, it remains questionable how much impact such a decision would have on the overall human rights situation in Qatar and on those migrant workers coming to the Gulf country in the future.

Further implications for transnational corporations

From a broader perspective, this case represents an example of a transnational private actor (i.e. FIFA) being sued in a State of its domicile (i.e. Switzerland) for damages resulting from human rights abuses which occurred in another country (i.e. Qatar). Taking into account FIFA's global operation and large-scale commercial activities, an analogy between FIFA and transnational corporations can be reasonably drawn.

The underlying purpose of suing a transnational entity in a State of its domicile is to evade judicial proceedings in developing countries which might prove to be largely inefficient.[22] In the United Kingdom, a group of Nigerian plaintiffs has recently sued Royal Dutch Shell plc ('RDS'), an Anglo-Dutch multinational oil company, and its Nigerian operating subsidiary Shell Petroleum Development Company of Nigeria Ltd ('SPDC'), for damages resulting from a severe pollution allegedly caused by the SPDC (and to a certain extent also the RDS) on Nigerian soil. On 26 January 2017, Mr. Justice Fraser, sitting as a Judge in the London High Court, dismissed the lawsuit in question on jurisdictional grounds.[23] Amnesty International has subsequently denounced the judgment by stating that it ''gives green light for corporations to profit from abuses overseas.'' However, less than a year ago, Mr. Justice Coulson, sitting as a Judge in the same court, decided to grant a forum for claims brought by Zambian citizens in relation to a massive water contamination in Zambia arising out of activities performed by Vedanta Resources plc ('Vedanta'), a global mining company with its headquarters in London, and its Zambian operating subsidiary Konkola Copper Mines plc.[24] Mr. Justice Coulson concluded that ''the claimants would almost certainly not get access to justice if these claims were pursued in Zambia.''[25] It has been suggested that Mr. Justice Coulson allowed the case to proceed in British courts particularly due to a substantial involvement of the parent company Vedanta with its Zambian subsidiary, as opposed to more independent regime established between the RDS and its Nigerian subsidiary SPDC. A decision on the merits is still pending.

The two cases referred to above demonstrate that extra-territorial human rights violations are usually triggered by a direct action of a foreign-incorporated subsidiary. Yet, FIFA's case differs in that the respective human rights violations emanate rather from a direct (in)action of a sovereign State - Qatar's unwillingness or inability to set aside its controversial labour laws. Alternatively, it could be argued that, by reason of its decision to award the World Cup to the Gulf country, FIFA is complicit in human rights violations triggered by Qatar's (in)action. That being said, is the difference between FIFA's case and the two cases mentioned above really substantial? In practice, is not the relationship between FIFA and Qatar akin to that of Vedanta and its Zambian subsidiary, with a high degree of direct involvement by FIFA? Be that as it may, the importance of the Ruling with respect to transnational corporations registered both in and outside Switzerland cannot be underestimated.

[1]      Ruling of the Commercial Court of the Canton of Zurich, HG160261-O, 3 January 2017. Parts of the Ruling which are quoted in this blog were translated from German by Prof. Liesbeth Zegveld (her team), who provided us with the English version of the Ruling.

[2]      Ibid., p. 2-3

[3]      Ibid., p. 4

[4]      See Art. 60 ZPO

[5]      Ruling of the Swiss Federal Supreme Court, BGE 137 III 617 E. 4.3

[6]      See Art. 59 (2) (b) ZPO

[7]      Ruling of the Swiss Federal Supreme Court, BGE 97 II 92

[8]      Supra note 6

[9]      Supra note 2, p. 6

[10]    Ibid., p. 7

[11]    Ibid., p. 8

[12]    Ibid., p. 9

[13]    Ibid.

[14]    According to Art. 59 (2) (a) ZPO, one of the preconditions for considering a civil lawsuit is the existence of plaintiff's legitimate interest

[15]    Supra note 2, p. 10

[16]    Ibid., p. 11

[17]    Ibid., p. 15

[18]    Ibid.

[19]    FIFA's Financial and Governance Report 2015, p. 17

[20]    Supra note 2, p. 18

[21]    Ibid., p. 6

[22]    E. Brabandere, 'Human Rights and Transnational Corporations: The Limits of Direct Corporate Responsibility', (2010) 4 (1) Human Rights and International Legal Discourse 66, at 76

[23]    Judgment rendered by Mr. Justice Fraser in the High Court of Justice, Queen's Bench Division, Technology and Construction Court, 2017 EWHC 89 (TCC), 26 January 2017

[24]    Judgment rendered by Mr. Justice Coulson in the High Court of Justice, Queen's Bench Division, Technology and Construction Court, 2016 EWHC 975 (TCC), 27 May 2016

[25]    Ibid., para. 198