Introduction: The new WADA Code 2015
Day 1: The impact of the revised World Anti-Doping Code on the work of National Anti-Doping Agencies
Day 2: The “Athlete Patient” and the 2015 World Anti-Doping Code: Competing Under Medical Treatment
Day 4: Ensuring proportionate sanctions under the 2015 World Anti-Doping Code

Editor's note

Howard Jacobs is solo practitioner in the Los Angeles suburb of Westlake Village, California. Mr. Jacobs has been identified by various national newspapers and publications as one of the leading sports lawyers in the world. His law practice focuses on the representation of athletes in all types of disputes, with a particular focus on the defense of athletes charged with doping offenses.Mr. Jacobs has represented numerous professional athletes, Olympic athletes, world record holders,  and amateur athletes in disputes involving doping, endorsements, unauthorized use of name and likeness, salary issues, team selection issues, and other matters.  He is at the forefront of many cutting edge legal issues that affect athletes, winning cases that have set precedents that have benefited the athlete community. More information is available at www.athleteslawyer.com.

Introduction

Historically, under the anti-doping rules of most organizations (including the World Anti-Doping Code), the concept of “strict liability” has meant that the proof of intent (or lack thereof) was irrelevant to the issue of whether or not the athlete has violated the anti-doping rules. However, so long as the rules provide for sanction ranges instead of a set sanction for all offenses, the issue of intent to dope has always been somewhat relevant to the issue of sanction length. The 2015 World Anti-Doping Code, with its potential four-year sanctions for a first violation based on whether or not the anti-doping rule violation was intentional, will make the question of intent an important issue in virtually every anti-doping case. This article analyzes these new rules allowing for four-year sanctions for a first violation, in the context of how intent (or lack of intent) will be proven.

I.         Why Intent Matters under the 2015 World Anti-Doping Code

It should be remembered that under the 2015 World Anti-Doping Code (“WADC”). intent is still irrelevant to the issue of whether or not an athlete has committed an anti-doping rule violation.  This is clear from the Comment to Article 2.1.1: “An anti-doping rule violation is committed under this Article without regard to
an Athlete’s Fault. This rule has been referred to in various CAS decisions as “Strict Liability”. An Athlete’s Fault is taken into consideration in determining the Consequences of this anti-doping rule violation under Article 10. This principle has consistently been upheld by CAS.”

Article 10 of the WADC – dealing with length of sanction, has always taken “intent” into account in determining whether or not a sanction should be reduced[1]. In other words, a sanction that would ordinarily be 2 years could be reduced to no sanction where the athlete had no fault or negligence whatsoever, or could be reduced to some degree if the athlete was not significantly at fault or negligent. In this way, intent is indirectly relevant to the issue of how much, if at all, an otherwise applicable sanction (sometimes referred to as the “default sanction”) could be eliminated or reduced. This is because an athlete who can prove that he or she did not intend to violate the anti-doping rules would be much more likely to establish a lack of significant fault or negligence in committing the violation in the first place.

Now, however, the 2015 WADC makes the issue of intent directly relevant to the first issue of the length of the default sanction itself. Therefore, intent is now not only relevant to the issue of reducing the default sanction, but is also relevant to the threshold issue of what the default sanction is in the first place.

Specifically, Art. 10.2.1 of the 2015 WADC provides: 

“The period of Ineligibility shall be four years where:

10.2.1.1 The anti-doping rule violation does not involve a Specified Substance, unless the athlete or other Person can establish that the anti-doping rule violation was not intentional.

10.2.1.2 The anti-doping rule violation involves a Specified Substance and the anti-doping organization can establish that the anti- doping rule violation was intentional.”

Art. 10.2.2 of the 2015 WADC goes on to state that “if Article 10.2.1 does not apply, the period of Ineligibility shall be two years.” Therefore, under the 2015 WADC, the default sanction is determined as follows: 

1.        where the violation does not involve a “Specified Substance,” the default sanction is four years unless the athlete can prove that the violation was “not intentional;” if the athlete meets this burden of proving “lack of intent,” then the default sanction is two years.

2.        where the violation involves a “Specified Substance,” the default sanction is two years unless the National Anti-Doping Organization (“NADO”) or the International Federation (“IF”) can prove that the violation was “intentional;” if the NADO or IF meets this burden of proving “intent,” then the default sanction is four years.

In either case, “intent” is now directly relevant to the length of the default sanction; the only difference is who bears the burden of proving “intent” or “lack of intent,” depending on whether or not the substance involved is a Specified Substance.

II.        How will the NADO / IF prove “intent” in cases involving “Specified Substances”?

Many older CAS cases have discussed the difficulty that a NADO or IF faces in proving that an athlete “intended” to use a prohibited substance, in their discussions of the justification of the “strict liability” rule.[2]

While this difficulty in proving that an athlete “intended” to use a prohibited substance to enhance their sport performance has not changed in theory, it has changed in practice with the definitions that WADA provided for proving “intent” within the meaning of Art. 10.2.1 of the 2015 WADC.  Specifically, Art. 10.2.3 now provides the following definition of “intent:” 

“As used in Articles 10.2 and 10.3, the term “intentional” is meant to identify those athletes who cheat. The term, therefore, requires that the athlete or other Person engaged in conduct which he or she knew constituted an anti-doping rule violation or knew that there was a significant risk that the conduct might constitute or result in an anti-doping rule violation and manifestly disregarded that risk. An anti-doping rule violation resulting from an adverse analytical finding for a substance which is only prohibited In-Competition shall be rebuttably presumed to be not “intentional” if the substance is a Specified Substance and the athlete can establish that the Prohibited Substance was used out-of-Competition. An anti-doping rule violation resulting from an adverse analytical finding for a substance which is only prohibited In-Competition shall not be considered “intentional” if the substance is not a Specified Substance and the athlete can establish that the Prohibited Substance was used out-of-Competition in a context unrelated to sport performance.”

Therefore, for the purpose of proving “intent” within the meaning of WADC Art. 10.2.1, in the case of Specified Substances, the NADO / IF can meet its burden by proving simply that the athlete engaged in conduct where the athlete “knew that there was a significant risk that the conduct might constitute or result in an anti-doping rule violation and manifestly disregarded that risk.” However, practical realities of this “proof” must be considered against the following questions:

(i)             How will this definition of “intent” contained in WADC Art. 10.2.3 be read in connection with the seemingly contradictory comment to 2015 WADC Art. 4.2.2 that specified substances are “substances which are more likely to have been consumed by an Athlete for a purpose other than the enhancement of sport performance”?

(ii)           How will an athlete who knowingly takes a “risky supplement” without knowing that the supplement contained a banned “Specified Substance” be viewed in connection with this definition of “intent” contained in WADC Art. 10.2.3?

Furthermore, in cases where an athlete intentionally used a supplement, but the athlete did not know that the supplement contained a prohibited substance (and where the lack of knowledge was reasonable, such as in cases involving misleading ingredient lists), what will the NADO /IF be required to prove? Will the burden be to prove that the athlete knew or should have known that the supplement contained a prohibited substance, or will it be sufficient to prove that the type of supplement or the supplement manufacturer itself could be viewed as risky, such that the athlete’s use of the supplement could be considered as a manifest disregard of a significant risk, for which the athlete should receive a four-year sanction? The manner in which CAS tribunals resolve this use could dramatically impact the applicable “default sanction” in cases involving nutritional supplements.

III.       How does the athlete prove “no intent” in cases not involving “Specified Substances”?

In cases that do not involve “Specified Substances,” the athlete carries the burden of proving “no intent” to avoid the application of a four-year default sanction. In many cases, therefore, this burden of proof will mean the difference between a career-ending sanction and one from which an athlete could potentially return. Therefore, the manner in which this burden of proof is applied by the arbitral tribunals will be critical.

As mentioned above, Art. 10.2.3 of the 2015 WADC provides that “an anti-doping rule violation resulting from an adverse analytical finding for a substance which is only prohibited In-Competition shall not be considered “intentional” if the substance is not a Specified Substance and the athlete can establish that the Prohibited Substance was used out-of-Competition in a context unrelated to sport performance.” Therefore, in cases involving non-specified stimulants, an athlete can avoid a “default sanction” of four years by proving that the stimulant was used out-of-Competition in a context unrelated to sport performance. This raises a number of important issues:

            a)         will arbitral tribunals accept a low concentration level of the prohibited stimulant in the anti-doping test, which low levels would be inconsistent with the purposeful use of the stimulant “in Competition,” as sufficient proof of out-of-Competition use?

            b)        will arbitral tribunals accept a polygraph finding that the athlete was truthful in stating that he did not use the prohibited substance at issue on the day of the competition at issue as sufficient proof of out-of-Competition use ? [3]

            c)         how will arbitral tribunals analyze the issue of whether the out-of-Competition use of the stimulant was “in a context unrelated to sport performance?”  As has been seen in past cases, arguments can be made that virtually any substance that an athlete consumes, including food, is done in a context related to sport performance.  Therefore, in order to avoid an analysis that renders this phrase meaningless, arbitral tribunals must apply a common-sense and realistic meaning to the issue of when something is consumed in a context that is actually related to sport performance, as opposed (for example) to consuming a product for general health purposes.

For substances that are banned at all times, such as anabolic agents, the analysis of “in-competition” vs. “out-of-Competition’ use will be unnecessary. In these cases, in order to avoid a “default sanction” of four years, the athlete will be required to prove that he or she did not take the substance intentionally. It is therefore critical to consider what will happen to the athlete who has no idea what caused his or her positive test, and who, despite investigation, is unable to prove the source of the prohibited substance. For these athletes, how will arbitral tribunals analyze this issue, which could mean the difference between a career-ending four-year sanction and a “default sanction” of two years?  Some important questions arise:

            a)         Will the athlete’s failure to prove how the prohibited substance entered his or her system (within the meaning of 2015 WADC Art. 10.4 and Art. 10.5.2) automatically result in a 4-year default sanction? Arbitral tribunals should recognize the difference between (i) proving the source of the prohibited substance as a pre-condition to receiving a reduction in the “default sanction,” and (ii) the requirement of proving “no intent” in order to avoid the application of a “default sanction” of four years. An athlete should be able to prove “no intent” without proving the source of the prohibited substance, at least in the abstract.

            b)        Assuming that the failure to prove how the prohibited substance entered the athlete’s system is not automatically equated with intent to use the prohibited substance, how will the athlete who cannot prove the source of the prohibited substance prove lack of intent? Will it be sufficient, for example, for an athlete to submit a polygraph finding that the he was truthful in stating that he did not knowingly use the prohibited substance at issue, as sufficient proof of lack of intent, such that the applicable “default sanction” is two years instead of four? Or, even in the absence of a polygraph exam, could an athlete establish “no intent” within the meaning of 2015 WADC Art. 10.2.1.1 solely through her own credible testimony that she did not knowingly ingest the prohibited substance at issue? These will be important evidentiary issues for arbitral tribunals to consider, and the manner in which they are determined will have a significant impact on the sanction length for many athletes under the 2015 WADC.

IV.       Conclusion

The concept of giving longer sanctions to athletes who intend to cheat, and shorter sanctions to those athletes who do not have such an intent, is certainly laudable, and the 2015 WADC has introduced a number of new legal and evidentiary issues in an effort to further differentiate between intentional and non-intentional “dopers.” However, as is often the case, the 2015 WADC has provided very broad concepts, which the arbitral tribunals will have to interpret and apply to real-world situations. How these general concepts are applied in reality will – for many athletes – mean the difference between a two-year sanction that is “merely” devastating and a four-year sanction that is career ending. In those cases where an athlete has no idea where the prohibited substance came from, the arbitral tribunals must be very careful in how they apply these new concepts.

 These new concepts related to “intent” will change the manner in which arbitral tribunals address the preliminary issue of the applicable “default sanction”. They will not materially affect the manner in which these tribunals address the issues related to the reduction in the “default sanction.” However, because of the limitations in how much the “default sanction can be reduced (in cases of no significant fault, the maximum reduction in the “default sanction” is 50 percent), the determination of this new “intent” issue as related to the “default sanction” will be doubly important in cases where the older “exceptional circumstances” rules are being asserted as a basis for sanction reduction.

[1] See, e.g., 2015 WADC Art. 10.4: “if an athlete or other Person establishes in an individual case that he or she bears no fault or negligence, then the otherwise applicable period of Ineligibility shall be eliminated”; and Art. 10.5 on the Reduction of the Period of Ineligibility based on No Significant Fault or Negligence.

[2] See, e.g., C. v. FINA (CAS 95/141) Digest of CAS Awards, Vol. 1, at p. 220, par. 13: “Indeed, if for each case the sports federations had to prove the intentional nature of the act (desire to dope to enhance one’s performance) in order to be able to give it the force of an offence, the fight against doping would become practically impossible”.

[3] Prior arbitral tribunals have already accepted that polygraph test results are admissible in anti-doping proceedings. See, e.g., UCI v. Contador (CAS 2011/A//2384).

In the last five years, the Striani case has been the main sword of Damocles hanging over UEFA’s Financial Fair Play Regulations. At the very least, the only real judicial threat they have faced (apart from the relatively harmless challenge mounted in the Galatasaray case at the CAS). Indeed, a Belgian player agent, Daniele Striani, represented by Bosman’s former lawyer Jean-Louis Dupont, attempted, in various fora, to challenge the compatibility of UEFA’s CL&FFP Regulations with EU law. Striani lodged a complaint with the European Commission (which was quickly rejected in October 2014) and initiated a private action for damages before the Brussels Court of First Instance. The latter deemed itself not competent to decide on the matter, but nevertheless accepted to order a provisory stay of the enforcement of the UEFA FFP Regulations pending a preliminary reference to the Court of Justice of the EU (see Ben van Rompuy’s blog on the case here). The CJEU unsurprisingly rejected to enter into the matter, but UEFA and Striani decided to appeal the first instance ruling to the Court of Appeal, which rendered its decision on 11 April. It is unclear at this stage whether Striani will attempt to challenge it at the Belgian Cour de Cassation (Highest Civil Court), however this would entail considerable risks and costs and his lawyers to date have not indicated that they would do so (see here). 

While the ruling of the Court of Appeal does not touch upon the much-discussed question of the compatibility of UEFA’s FFP Regulations with EU law (see our many blogs on the question here, here and here), it remains an interesting decision to discuss broader questions related to the procedural ease in challenging regulatory decisions passed by sports governing bodies (SGBs) based in Switzerland. Competition law constitutes the main legal tool available to sports stakeholders looking to challenge existing regulatory arrangements from the outside (e.g. not going through the internal political systems of the SGBs or the CAS route). Recent cases, such as the ISU decision of the European Commission, the Pechstein case in front of the German courts or the Rule 40 decision of the German competition authority, have demonstrated the potency of competition law to question the legality of the rules and decisions of the SGBs.[1] In this regard, the decision of the Brussels Court of Appeal narrows the range of parties allowed to challenge in European courts the SGBs’ rules and decisions on the basis of competition law.

I.               A Strict Interpretation of Article 5(3) of the Lugano Convention 

Striani, supported by a number of fans based in France and the UK (presumably PSG and Manchester City supporters), was challenging the UEFA FFP rules for their indirect effects. In short, the core claim was that the FFP Regulations, by curtailing the ability of clubs to invest on the transfer market, had the effect of depriving Striani from the chance to earn more money for his services as an intermediary and the fans from a chance to see better players join their favorite team and therefore improve the quality of the team’s performance. Undoubtedly, these effects were not primary objectives of the FFP rules, which were aimed at constraining the ability of clubs to invest at a loss. Moreover, the rules were only constraining clubs qualified to the European competitions. The question from the point of view of private international law, was whether Striani and the fans could rely on Article 5(3) Lugano Convention to sue UEFA in front of the the Belgian courts.[2]

The Court of Appeal acknowledged that in this case it was dealing with an action in liability for a breach of competition law but sided with UEFA in considering that the hypothetical damage suffered by the claimants in Belgium was too indirect for it to be competent. It came to this conclusion after a journey through well-known European private international law judgments, such as Mines de Potasse d’Alsace, Dumez France or Shevill, and other less known (mainly French and Belgian) judgments in cases involving Swiss-based SGBs.[3] In the present case, it noted that « the challenged UEFA Regulation does not prohibit M. Striani and MAD Management […] from exercising the activity of an intermediary in Belgium or abroad, nor does it regulate the conditions in which this activity is to be exercised ».[4] Moreover, the targeted provisions « do not prohibit the relevant clubs from having recourse to agents […] nor do they limit this activity ».[5] In fact, the prejudice alleged by Striani and MAD Management « is only an indirect consequence of the adoption of the challenged UEFA Regulation », as « it is not related directly to the activity of the claimants and does not have direct consequences on this activity in Belgium or abroad ».[6] Thus, the Court decided that jurisdictions of the seat of UEFA (the Swiss courts) are sole competent to hear the matter.

This conclusion is not surprising. It was also the one reached by the first instance court, which however still decided quite surprisingly to send a preliminary reference to the CJEU and to order a stay in the enforcement of the UEFA FFP Regulations (the latter move was condemned by the Court of Appeal). Yet, it carries implications in the context of transnational sports regulation. Indeed, this is a domain in which the consumers (e.g. fans) are heavily impacted by decisions taken by international SGBs located mainly in Switzerland. The regulatory decisions of these bodies have undoubtedly structural effects on the way a particular sport is experienced by the fans. Moreover, due to the monopoly positions of the SGBs over their sports, these decisions are rarely challenged by competitors (such as the International Swimming League). They often bind the fans and determine the quality of the competitions they are watching and are doing so without providing them any type of say in the regulatory process. Sure, fans (or agents) will still be able to sue the SGBs in Swiss courts, but those have proven extremely ‘benevolent’ vis-à-vis the SGBs and are unlikely to apply EU competition law. In short, the Belgium court has consolidated the exclusion of actors indirectly affected by the decisions of the SGBs from European courts. What happens in Switzerland stays in Switzerland…

II.              The irresponsibility of the URBSFA for UEFA’s decisions

The second strategy used by Striani’s lawyers to anchor the dispute in Belgium was their attempt to involve the Belgium football federation, URBSFA, in the case. Indeed, as the URBSFA is seated in Belgium, there is no issue with regard to the competence of the Belgium courts in its regard. However, here the problem arises in connection to the URBSFA’s causal contribution to the adoption and enforcement of the challenged UEFA FFP Regulations. Indeed, the court held that « the fact that URBSFA is a member of UEFA does not turn it into a co-author of the regulations; the reasoning of the claimants ignores the separate legal personality of UEFA ».[7] The claimants were also alleging that the URBSFA was contributing to the enforcement of the FIFA rules, yet the court finds that they are « confusing the licensing role conferred to the national federations […] with the specific rules regarding the financial balance of clubs enshrined in Articles 57 to 63 of the attacked regulations ».[8] In fact, the « federal regulations of the URBSFA do not impose any constraints, or sanctions, with regard to the challenged break-even rules; these are of the sole competence of UEFA. »[9] Hence, the court concludes that no particular wrongful conduct can be attributed to the URBSFA linked to the harm alleged by the claimants.

By doing so, the Court of Appeal holds onto the formalist idea of the separate corporate personalities and brushes over the fact that national federations are at least politically co-responsible for the policies adopted, e.g. they hold the voting power inside the international federations. In this context, invoking the corporate veil might let national federations too easily off the hook, even though it is certainly true that a single national federation does not have a decisive voting power or influence inside an international SGB. Here, there is an interesting parallel with the functioning of the European Union itself, as it seems that decisions taken by UEFA (not unlike the EU’s) are not politically (or in this case legally) attributable to the individual member associations (the famous blame Brussels culture). The idea of a joint action between national and international federations leading to the exercise of collective power might be more suitable to capture the transnational regulatory dynamics at play in sports and could lead to some form of joint liability. In any event, this part of the decision highlights another difficulty in anchoring a case outside of Switzerland, as national federations will often be deemed an inadequate defendant due to their relatively passive role in the adoption and enforcement of the regulations of the international SGBs.

Conclusion

Striani’s crusade against UEFA’s FFP Regulations came to a strange end. While legal scholars and practitioners have been discussing at length whether FFP can be deemed compatible with EU law or not (I’ve spoken in favor of compatibility under certain circumstances, but many others have disputed it), the much-awaited ruling did not even touch upon this question. Indeed, the Brussels Court of Appeal simply denied its competence to hear the matter and sentenced the claimants to pay quite high legal fees to UEFA. By doing so, it did not simply put an end to a case that felt quite artificial and which might have been a pawn in a wider game between UEFA and some powerful clubs, it also closed the door on a variety of stakeholders willing to challenge the rules and decisions of SGBs outside of Switzerland. Indeed, if this interpretation of the Lugano Convention were to stand, it would for example exclude fans from being able to launch liability claims, on their home judicial turf, against international SGBs for the damage inflicted to their clubs.

Besides those directly impacted, in the case of FFP primarily the clubs (would the players be sufficiently directly affected? Maybe, maybe not), those that wish to challenge the rules and decisions of the SGBs are condemned to turn to the Swiss courts, which are rather well-known for their deference to the wide regulatory autonomy of international SGBs. In short, what happens in Switzerland (e.g. the adoption and enforcement of the SGBs’ regulations) is to stay judicially in Switzerland. This will be a reassuring news for the network of Swiss private associations that rule over international sports as it will reduce the risk of facing civil litigation outside of their well-chartered home turf. In fact, it is extremely rare for those directly affected (e.g. the clubs and athletes) to be ready to go to court to challenge them. As evidenced by the case of Bosman or Pechstein, the short-term costs in doing so are disproportionately high (boycott and career-end for the former, bankruptcy for the latter) while the chances of success remain quite limited. Similarly, a football club is unlikely to take the risk of going against UEFA or FIFA, unless it has nothing left to lose (e.g. like SV Wilhelmshaven). In sum, even if I believe UEFA’s FFP rules could be allowed to stand under EU law, this ruling sheltered UEFA from having to deal with this question, at least for the time being.

[1] In general, see B. Van Rompuy, The Role of EU Competition Law in Tackling Abuse of Regulatory Power by Sports Associations, Maastricht Journal of European and Comparative Law (2015), vol. 22, nr. 2

[2] Article 5(3) Lugano Convention provides that: A person domiciled in a State bound by this Convention may, in another State bound by this Convention, be sued in matters relating to tort, delict or quasi-delict, in the courts for the place where the harmful event occurred or may occur.

[3] See the judgments cited in Cour d’appel Bruxelles, UEFA c. Striani & co, 11 avril 2019, 2015/AR/1282, paras 40 & 41.

[4] « En effet, le Règlement UEFA critiqué n'interdit pas à M. Striani et à MAD Management, qui se présentent comme agent de joueurs de football en Belgique (le premier comme personne physique et la seconde étant la société à travers laquelle le premier exerce son activité), d'exercer cette activité d'agent, en Belgique ou à l'étranger ni ne règle les conditions d'exercice de cette activité. » Ibid, para. 42.

[5] « Par ailleurs, ces dispositions ne font nullement interdiction aux clubs concernés de recourir aux services d'agents, tels les demandeurs originaires, ni ne limitent cette activité. Ibid.

[6] « ll découle de ce qui précède que, sans préjuger de la matérialité du dommage invoqué par M.Striani et MAD Management, ce dommage, à le supposer établi, n'est qu'une suite indirecte du l'adoption du Règlement UEFA querellé. Le Règlement querellé ne concerne pas directement l'activité des demandeurs originaires et n'a pas de conséquence directe sur cette activité, en Belgique ou ailleurs. » Ibid.

[7] « L’URBSFA n'est pas l'auteur des règles d'équilibre financier prévues au Règlement UEFA. Le seul fait que I'URBSFA soit membre de l'UEFA ne la rend pas co-auteur du Règlement; le raisonnement des intimés fait fi de la personnalité juridique distincte de l'UEFA. » Ibid, para. 48.

[8] « Ce faisant, les intimés entretiennent la confusion entre le rôle dévolu aux fédérations nationales pour l'octroi des licences, non critiqué en tant que tel, et les règles particulières concernant l'équilibre financier, prévues aux articles 57 à 63 du Règlement querellé. » Ibid.

[9] « Le Règlement fédéral de l'URBSFA ne comporte dès lors pas d'exigence, ni de sanction, concernant les règles d'équilibre financier querellée; celles-ci sont uniquement du ressort de l'UEFA. » Ibid.

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.

In the football world the use of unilateral extension options (hereafter UEOs) in favour of the clubs is common practice. Clubs in Europe and, especially, South America make extensive use of this type of contractual clauses, since it gives them the exclusive possibility to prolong the employment relationship with players whose contracts are about to come to an end. This option gives to a club the right to extend the duration of a player’s contract for a certain agreed period after its initial expiry, provided that some previously negotiated conditions are met. In particular, these clauses allow clubs to sign young promising players for short-term contracts, in order to ascertain their potential, and then extend the length of their contracts.^[1] Here lies the great value of UEOs for clubs: they can let the player go if he is not performing as expected, or unilaterally retain him if he is deemed valuable. Although an indisputably beneficial contractual tool for any football club, these clauses are especially useful to clubs specialized in the development of young players.^[2] After the Bosman case, clubs have increasingly used these clauses in order to prevent players from leaving their clubs for free at the end of their contracts.^[3] The FIFA Regulations do not contain any provisions regulating this practice, consequently the duty of clarifying the scope and validity of the options lied with the national courts, the FIFA Dispute Resolution Chamber (DRC) and the CAS. This two-part blog will attempt to provide the first general overview on the issue.^[4] My first blog will be dedicated to the validity of UEOs clauses in light of national laws and of the jurisprudence of numerous European jurisdictions. In a second blog, I will review the jurisprudence of the DRC and the CAS on this matter.

Even though the DRC’s and the CAS’s view on UEOs matter most prominently in daily practice, it is impossible to entirely ignore the positioning of national laws and EU law vis-à-vis the legality of UEOs. In fact, as we will see later, arguments derived from national law also play a fundamental role in the assessment of the UEOs by the CAS. A comparative analysis of the UEOs validity under national laws is extremely difficult to conduct, as these clauses are relatively rare outside of football and the few rulings of lower level national courts are difficult to access. In an ordinary employment contract, deprived of the specificities of the sporting context, it is hard to fathom the utility for the employer to have the power to extend the contract unilaterally at his or her will. Due to the operation of the transfer market, football players are in a peculiar employment condition, hardly comparable to that of any other employee. The investments clubs make on training footballers and their transfer value contribute to this unique employment relationship to the extent that footballers are considered intangible assets for the clubs.^[5] Given the difficulty of comparing hardly comparable situations, the only way to proceed to a comparative overview is to attempt to produce comparative snapshots, which, due to the limited amount of space, are necessarily incomplete.

In Switzerland: It’s unenforceable

It is ironical that in a liberal country like Switzerland, where contractual freedom is interpreted widely, the validity of UEOs under national law is doubtful. Although there are no provisions concerning UEOs in Swiss labour law, we can conclude that under Swiss law these clauses are most likely unenforceable.^[6] In Switzerland such an option would be deemed to infringe employment law and thus considered invalid when incorporated in employment contracts. According to Art. 335a para. 1 of the Swiss code of Obligations^[7] there must be formal parity between employer and employee concerning terminations of contracts. UEOs clauses would circumvent this provision by creating disparity between the parties, as they confer to one party the unilateral possibility to prolong the contract. The Swiss Civil Court, although in disputes arising outside the realm of football, has in the past denounced the circumvention of the provisions. It imposed the equality of treatment between employer and employee concerning the conditions of termination of an employment contract. In one case regarding a two year contract for services abroad, which included the possibility of tacit renewal and the right for the company to recall the employee in Switzerland, the Court stated that the right to recall the employee granted unilaterally to the employer gave him a more favourable position than the employee with regard to the termination of the fixed-term contract. This situation, stressed the Court, is contrary to the purpose of then Art. 336 para. 2 CO, which aims to grant equivalent protection to the parties.^[8] A next case involved a trilateral service contract between an employee, an employer (Meco Mechanical Corporation) and a beneficiary (the government of the then United Arab Republic, a short-lived political union between Egypt and Syria). The contract included a right to early termination granted to the beneficiary. The Court, nonetheless, stated that this right is contrary to “Article 347 (3) of the Swiss Code of Obligations, which prohibits the agreement between different periods of notice for the employer and the service provider. This prohibition cannot be circumvented by making the right of termination or the automatic termination of the employment relationship conditional upon a condition which is unilaterally dependent on the will of the employer. Such a condition would allow the employer to terminate the contract at a point in time at which the service provider could not.”^[9]

It should be noted that the principle of parity between the parties is not considered part of the Swiss ordre public. Consequently, if a case has to be decided on Swiss territory according to a foreign law that allows for the use of unilateral extension options, Swiss law cannot prevent the application of such clauses. However, if the clause leads to over extensive commitment on the side of the employee, it might be considered an infringement of the ordre public and, thus, be deemed null and void. 

In Germany: It’s complicated

According to a first ruling of the Labour Court of Ulm, some UEOs are considered null and void. It concerned a one-year agreement (valid from 1 January 2007 to the end of season 2007/2008) between the club and the player, which contained an UEO giving the club the right to extend the contract for one more year. ^[10] The Court held the option invalid. More precisely, the Court considered the unilateral option ineffective. Based on Art. 307 para. 1 BGB, provisions in general terms and conditions should be considered invalid if they unduly penalize the contractual partner and are not accompanied with appropriate compensatory measures. In the present case, the Court found that the unilateral option clause served only the purpose of providing the employer with an additional income in the form of a transfer indemnity. In these conditions, the UEO amounts to a disproportionate restriction of the freedom to work enshrined in Art. 12 of the Grundgesetz (German constitution).^[11]

Nonetheless, a few years after the decision of the Labour Court of Ulm, the German Federal Labour Court held (implicitly) another UEO clause for valid.^[12] The Court dealt with the option only incidentally, as the case mainly revolved around the validity of the resolution agreement signed by the parties. The player, 15 years old at the time, and the club had originally concluded a contract for a period of four years (from 1 July 2006 to 30 June 2010) with the option granted to the club to unilaterally extend the relationship for another year (until 30 June 2011). Sometime after having joined the club, the player started suffering psychological pressure due to a series of personal circumstances and expressed the desire to terminate the contract prior to its natural expiry. The parties then signed a resolution agreement, pursuant to which the club agreed to a resolution in return of a payment of € 40,000. The decision was focused on the validity of that agreement, it only briefly scrutinised the extension option and considered it compatible with the framework of § 15 Abs. 4 TzBfG (or of § 624 BGB for free employment), due to the fact that the length of the contract respected the maximum binding time of five years.^[13] The Court emphasised, in fact, that this is the threshold a fixed-term employment contract has to observe in order to avoid curtailing excessively the employee’s personal freedom and added that the standard is consistent with the principle of freedom of work and of choice of work enshrined in Art. 12(1) of the Basic Law.^[14]

In the Netherlands: It’s probably ok

It takes a bit of legal extrapolation to conclude that any jurisdiction plainly authorizes UEOs, given that none of those examined for the purpose of this blog has a labour legislation in place which expressly supports the validity of UEOs. However, in the Netherlands, where the national labour legislation does not contain any provisions on UEOs, the only known (private) decision to date recognized the validity of such clauses under Dutch law. In the dispute between the Tunisian football player Hatem Trabelsi and his club Ajax Amsterdam the unilateral option included in the contract was deemed to be valid and binding.^[15] The ruling found the option compatible with the dismissal system provided by labour law in combination with contract law.^[16]

In Belgium, Spain, Austria and Italy: It depends on the collective bargaining agreement

A very common framework among jurisdictions seems to reflect the specificity of sport in that it makes footballers’ employment contracts sort of double-layered agreements regulated by employment legislation on the one side and by Collective Bargaining Agreements (CBAs) on the other. In this context, the various legislations delegate to CBAs the duty to outline the details of footballers’ employment conditions, among which one often finds the requirements for UEOs to be validly included therein.

In Belgium, player contracts are mainly regulated by provisions of employment law, in particular by the Act of 3 July 1978 on employment contracts (the Employment Contracts Act).^[17] Yet, with regard to option clauses, the Football Collective Agreement of 15 February 2016 states that, although in general these options are not valid, they are not considered to be unilateral under certain conditions. According to Art. 15 of said agreement, if the clause (i) is agreed upon in writing at the outset, (ii) provides a total duration, extension included, of the relationship of maximum 5 years, and 3 years for under 18 players and (iii) provides for a certain increase in salary (at least 15% of the fixed remuneration and 5% of the match- or selection premium, or 20% of the fixed remuneration, whereby the increase does not need to exceed the amount of 20.000 Euro), it might be considered valid and binding as not unilateral.

In Italy, the employment aspects of sports are regulated by the Law 91/1981. This special legislation, according to which some of the dispositions applicable to subordinate employment do not apply in the sporting context,^[18] was enacted to reflect the peculiarities of the employment relationship in sport.^[19] This legislation does not include any express provision covering UEOs, but – while generally stating at art. 5 that the duration of the fixed-term contract cannot exceed five years - it relies on the CBA for specific contractual requirements. Art. 2 para. 2 of the CBA states that “option agreements are permitted both in favour of the Club and the Player, on the dual condition that a specific consideration is provided in favour of the party who grants the option and that the limit of the overall duration of the Contract, such overall duration consisting of the sum of the duration provided plus any extension represented by the option […], does not exceed the maximum duration provided by law”. The “specific consideration” of the English version is translated from “corrispettivo specifico” which means that, aside from the five-year ceiling, the condition for the UEO to be valid is an increase in the salary of the player.

In Austria these clauses are not invalid as such, but they have to meet the requirements laid down in Section 6(4) of the Collective Agreement for football players of the Austrian Football League (KV-ӦFB), as amended on 1 July 2014. It reads as follows: “The granting of an option to be exercised by a unilateral declaration is only permissible if each party of the contract is granted equal rights and the exercise of the option is linked to equivalent conditions for both parties […]. The date of conclusion of the contract shall be decisive for the assessment of equivalence”.^[20] The Austrian Supreme Court recently upheld the decision of the lower courts in a dispute regarding the validity of an extension option contained in a football player’s contract.^[21] The one-year agreement, valid from 1 July 2014 to 30 June 2015, contained an option that granted the club the possibility to extend the contractual relationship for two more years, until June 2017, as long as the club exercised it by 31 May 2015.  On October 2015 the player remitted his salary payments to the club and referred the case to the Tribunal to question the validity of the option. Both the Court of first instance and the Court of Appeals considered the agreement ineffective as the clause did not meet the requirements of Section 6 (4) KV-ӦFB. The ground on which the two courts reached this conclusion was the lack of equivalency of rights under the agreement, as (i) the increase in salary (of 15%) was not proportionate to the length of the extension; (ii) at the time of signing the contract, the contractual conditions for an extension were not defined.[22] The Supreme Court held that the assessment of the lower courts could not be disputed and reiterated that Section 6 (4) KV-ӦFB is unequivocally clear in requiring the granting of equivalent rights to both parties of the contract for an UEO to be acceptable. Equivalence, the Court continued, that has to be assessed at the date of conclusion of the contract.

In Spain the main source of law regarding the employment relationships of professional athletes is the Royal Decree 1006/1985. Regarding the duration of the contract, art. 6 of RD 1006/85 provides that (i) sportsmen contracts are always fixed-term contracts, (ii) the extensions of these contracts, which shall always be definite as well, can be achieved through subsequent agreements between the parties when the contract is about to expire. Paragraph 3 of this provision admits different possibilities of extension in so far as the Collective Bargaining Agreement provides so.^[23]  On the matter, the current Collective Bargaining Agreement defer in turn to the RD 1006/85, as Art. 14 provides that “by mutual agreement between the Club and the Footballer, the contract may be extended, in the terms established in the second paragraph of article 6 of Royal Decree 1006/1985, of June 26”. At the moment, therefore, it seems that extension options in Spain need to be agreed with the player.

In the UK: Likely not

Sometimes circumstances other than the CBA can play a role. The United Kingdom and the Premier League, for instance, represent a unicuum in the panorama of the jurisdictions under scrutiny in the sense that, although here – as in other countries – the employment relationship is governed by national law, collective agreements and the rules of the Football Association (FA),^[24] two specificities place this system in a peculiar position. First of all, in the United Kingdom collective agreements are not legally enforceable. It is true that the terms of a collective agreement may be binding and enforceable between the parties of an employment relationship if these have been incorporated into the individual contract.^[25] However, a court may nonetheless conclude that the term is not enforceable. Secondly, no single overarching collective agreement encompasses the employment relationship between clubs and players in the Premier League. There are, instead, a series of collectively negotiated agreements, such as the Standard Players’ Contract.^[26] In an early decision that challenged the English ‘Retain and Transfer System’ as an unlawful restraint of trade, the High Court placed emphasis on the inequality of bargaining power in a professional football player’s relationship with a club, stating that “in the football industry players commonly enter into their first contract either while they are under 21 or shortly afterwards, and that wherever they may subsequently go, within the Football League, there is only one form of contract they can sign. The Court must be careful to see that contracts made in these circumstances are justifiable in the interests of both parties”.^[27]

That said, although there is no CBA in place that can enlighten us about the validity of UEOs, a satisfying answer could nonetheless be found in the Courts’ rulings concerning contracts in the (to some extent) comparable context of the music industry. The profession of the musician resembles in various aspects that of the football player. As for footballers, musicians’ contracts are linked to their performance, in terms of copies of albums sold, concert tickets sold, royalties from the ads etc. The more a musician is perceived to be promising, the more lucrative the contract he can get from the record company will be. Just as sports professionals, musicians often begin their career in their prime age. In order to get a foot in their respective highly rewarding industries, sportsmen and musicians might agree to contractual clauses without fully understanding the consequences or, more likely, even if they do fully understand the implications of such contracts they may feel they have no option but to sign them if they want their career to start or progress.^[28] This similarity allows us to draw some useful comparisons from the case law of UK courts regarding musicians.

For instance the House of Lords declared void an agreement between a young and unknown musician by the name of Tony Macaulay and the publishing company Schroeder Music Publishing Co Ltd, which contained a clause extending to 10 years the original five-year undertaking of the company.^[29] When he signed the contract, the musician was aged 21. The agreement provided that the duration of five years would have been extended to 10 in case the royalties for the first five years exceeded £ 5,000. In the words of Lord Reid “if the respondent’s work became well known and popular he would be tied by the agreement for ten years”.^[30] In consideration of the duration of the contract and the fact that the payment received by the author was minimal unless his work was released, which was not an obligation for Schroeder Music according to the contract, Lord Reid was of the opinion that the publishers’ appeal had to be dismissed. His reasoning was grounded on the consideration that “if contractual relations appear to be unnecessary or to be reasonably capable of enforcement in an oppressive manner, then they must be justified before they can be enforced”.^[31] Lord Diplock deemed the contract unenforceable due to its substantial unfairness and emphasised the need to accord protection to “those whose bargaining power is weak against being forced by those whose bargaining power is stronger to enter into bargains that are unconscionable”.^[32] For the same reason, the English Court of Appeal struck down as void a publishing agreement between the already established band Fleetwood Mac and the publisher which tied the band to the company for a five year period plus the possibility to extend the relationship for another five years.^[33] The court held that the publishing agreement gave the company “a stranglehold over each of the composers”^[34] and found the contract fundamentally unfair to the group.

These two decisions give us an insight on how under English law, where – it is important to bear in mind – as a general rule the letter of the contract prevails, clauses of these kind tying professional musicians have been considered null and void because of the disproportionate contractual power between the parties. A conclusion that was confirmed even when the band concerned was not unknown. It is easy to see how such reasoning could be applied to UEOs in professional football.

Under EU law: It should be fine

The last unknown is the position of EU law with regard to UEOs. In many ways, UEOs are contractual mechanisms used to attenuate the consequences of the Bosman ruling.  Indeed, they give the club the opportunity to prolong an employment contract without the consent of a player, and therefore to obtain compensation in case the player wishes to move to another club. However, the striking difference with a Bosman situation is that this contractual set-up is not mandated by the private regulations of the football federations or leagues. Instead, it is negotiated ab initio between the contractual parties, and hardly ever imposed by a collective agreement. Thus, as long as the original free will of the player is not constrained by private rules, which in fact might be the case in a closed labour market where the clubs can act as an oligopoly and (implicitly) coordinate their behaviour, one could argue that the free movement of a player is restricted only by his or her own free will.  In its more recent Bernard ruling, the CJEU came close to dealing with an UEO, but here again the forced prolongation of the contract was imposed by the French collective bargaining agreement in force at the time of the dispute and not negotiated on an individual basis between the parties. Therefore, it is relatively unlikely that EU law could be successfully invoked to challenge the validity of UEOs, unless those are at least identified as a collective practice or informal rule applied by clubs against the will of players.

Conclusion: A European legal mess

Notwithstanding the hardly avoidable incompleteness of the above comparative sketch, a short conclusion on the validity of UEOs in light of national and European law is in order. First of all, it is clear that no single answer prevails Europe-wide. The brief analysis carried out shows that each of the jurisdictions scrutinised approaches the topic differently. The only uniformly shared regulatory trait is that national legislators have not regulated the matter. Instead, we had to look for potential answers in the jurisprudence of local courts, more often than not extrapolating from cases outside of the realm of football. Furthermore, legislators commonly delegate to CBAs the duty to define the employment conditions of professional football players. In short, the legality of UEOs is usually dependent on the interpretations of local courts or the decisions of local social partners. However, where UEOs are deemed valid, it is always under stringent conditions such as a strict limit to the overall duration of the extended contract and the provision of a substantial increase in salary. Hence, the validity of UEOs hinges on the rather subjective evaluation of the overall fairness of a specific UEO in the context of a specific contract. Whether this is also true of the jurisprudence of the DRC and the CAS when confronted to UEOs will be the subject of our next blog.

[1] The reference is obviously to young players older than 18, as in respect of contracts of minors art. 18 FIFA RSTP is crystal clear in prohibiting the signing of contracts longer than three years.

[2] D. F.R. Comparie, G. Planás R.A. and S-E. Wildermann, Contractual Stability in Professional Football: Recommendations for Clubs in a Context of International Mobility, 2009, p.27. The authors point out that, although transfer fees constitute an important part of every clubs’ financial income, some clubs, particularly those with smaller broadcasting revenues, rely on them to a great extent. Usually, clubs which cover their costs mainly through transfer fees tend to build a good youth development, because being able to sell the players when they are valued the most is financially crucial for them.

[3] F. de Weger, The Jurisprudence of the FIFA Dispute Resolution Chamber, Asser Press, 2016, p. 164.

[4] The few existing contributions on this question are F. De Weger, The Jurisprudence of the FIFA Dispute Resolution Chamber, Asser Press, 2016, pp 163- 191 and W. Portmann, Unilateral option clauses in footballers’ contracts of employment: an assessment from the perspective of international sports arbitration,Sweet Maxwell Int Sports Law Rev, 2007,  7(1):6-16.

[5] See UEFA Club Licensing and Financial Fair Play Regulations (2015 Edition), which, at ANNEX VI (B)(ix), includes players as intangible assets among the assets that need to be disclosed for balance sheet requirements and, at ANNEX VII (C)(1), sets out the minimum accounting requirement “for player registrations carried out as intangible fixed assets as set out in Articles 47, 48 and 52”.

[6] For a similar view, see Jan Kleiner, Der Spielervertrag im Berufsfussball, Schulthess, 2013, at pp. 891-900.

[7] Art. 335a para 1 Swiss Code of Obligations reads as follows: “Notice periods must be the same for both parties; where an agreement provides for different notice periods, the longer period is applicable to both parties”.

[8] BGE 108 II 115.

[9] BGE 96 II 52. The original German version reads as follows: “Eine solche Schranke bildet insbesondere Art. 347 Abs. 3 OR, der die Vereinbarung verschiedener Kündigungsfristen für den Dienstherrn und den Dienstpflichtigen verbietet. Dieses Verbot kann nicht dadurch umgangen werden, dass das Kündigungsrecht oder die automatische Beendigung des Dienstverhältnisses von einer Bedingung abhängig gemacht wird, deren Eintritt einseitig vom Willen des Dienstherrn abhinge. Eine solche Bedingung würde es dem Dienstherrn erlauben, den Vertrag schon auf einen Zeitpunkt zu beenden, auf den der Dienstpflichtige das nicht tun könnte. Ein bedingtes Kündigungsrecht und eine bedingte automatische Beendigung des Dienstverhältnisses dürfen nur vereinbart werden, wenn und soweit der Eintritt der Bedingung vom Willen der Parteien nicht abhängt oder beide Parteien ihn in gleicher Weise herbeiführen können“.

[10] ArbG Ulm, judgment of 14 November 2008 – 3 Ca 244/08.

[11] Ibid., para. 37. The original German version reads as follows: “Nach § 307 Abs. 1 Satz 1 BGB ist eine formularmäßige Vertragsbestimmung unangemessen, wenn der Verwender durch einseitige Vertragsgestaltung missbräuchlich eigene Interessen auf Kosten seines Vertragspartners durchzusetzen versucht, ohne von vornherein auch dessen Belange hinreichend zu berücksichtigen und ihm einen angemessenen Ausgleich zu gewähren. Die Feststellung einer unangemessenen Benachteiligung setzt eine wechselseitige Berücksichtigung und Bewertung rechtlich anzuerkennender Interessen der Vertragspartner voraus. Bei diesem Vorgang sind auch grundrechtlich gestützte Rechtspositionen zu beachten. Zur Beurteilung der Unangemessenheit ist ein genereller, typisierender, vom Einzelfall losgelöster Maßstab anzulegen. Im Rahmen der Inhaltskontrolle sind dabei Art und Gegenstand, Zweck und besondere Eigenarten des jeweiligen Geschäfts zu berücksichtigen. Zu prüfen ist, ob der Klauselinhalt bei den typischen Interessen der beteiligten Verkehrskreise eine unangemessene Benachteiligung des Vertragspartners ergibt (vgl. BAG Urteil vom 18.03.2008 9 AZR 186/07 Rn. 19, NZA 2008, 1004 ff.). § 6 a Spielervertrag gibt nur dem Arbeitgeber das Recht, den Vertrag um ein Jahr zu verlängern. Will der Spieler den Arbeitgeber nach Ablauf der Laufzeit des Vertrages wechseln und übt der Arbeitgeber sein einseitiges Optionsrecht für die Vertragsverlängerung rechtzeitig aus, führt das dazu, dass ein aufnahmebereiter Arbeitgeber eine Freigabe des Spielers durch den bisherigen Arbeitgeber nur gegen Zahlung einer Transferentschädigung erhalten wird. Durch die Transferentschädigung reduziert sich die Aufnahmebereitschaft von neuen Arbeitgebern und die Verdienstmöglichkeit des Arbeitnehmers bei neuen Arbeitgebern. Der Kläger verursacht dem neuen Arbeitgeber bei einem ablösefreien Wechsel weniger Kosten. Der budgetierte neue Arbeitgeber kann dem Kläger in diesem Fall eine höhere Vergütung zahlen. Die einseitige Optionsklausel dient nur dazu, dem abgebenden Arbeitgeber eine zusätzliche Einnahme in Form einer Transferentschädigung zu verschaffen. Sie behindert damit erkennbar die Berufsfreiheit des Arbeitnehmers nach Artikel 12 Abs. 1 Satz 1 Grundgesetz, wonach alle Deutschen u. a. das Recht haben, die Arbeitsstätte frei zu wählen. Das Interesse des Beklagten an einer Einnahmequelle aus einem Spielertransfer hat hinter dem grundgesetzlich geschützten Interesse des Klägers an der Berufsfreiheit zurückzutreten”.

[12] BAG, judgment of 25 April 2013, 8 AZR 453/12.

[13] Ibid., para 32.

[14] Ibid.

[15] Dutch KNVB Arbitration Tribunal, 4 June 2004 n. 1022.

[16] M. Colucci and F. Hendricks, Regulating Employment Relationships in Professional Football. A Comparative Analysis, European Sports Law and Policy Bulletin 1/2014, p. 254.

[17] Ibid., 39.

[18] To sports contracts do not apply Art. 4, 5, 13, 18, 33, 34 L. 300/1970, regulating, among others, medical assessments and dismissals and Art. 1, 2, 3, 5, 6, 7, 8 L. 604/1966. To fixed term contracts, the provisions of L. 230/1962 do not apply.

[19] Colucci, Hendricks, Regulating Employment Relationships in Professional Football. A Comparative Analysis, European Sports Law and Policy Bulletin 1/2014, 201 – 202.

[20] The original German version reads as follows: “Die Einräumung von durch einseitige Erklärung auszuübenden Gestaltungsrechten (Optionsrechten) ist nur zulässig, wenn sie jedem Vertragsteil gleichwertige Ansprüche einräumt und auch die Art der Ausübung des Optionsrechtes für beide Teile an gleichwertige Bedingungen geknüpft ist (z.B. einseitige Vertragsverlängerungsmöglichkeit durch den Klub bei bereits vorab festgesetzter Gehaltserhöhung für den Spieler oder sonstiger gleichwertiger Verbesserungen für den Spieler, wobei stets die besonderen Umstände des Einzelfalles [Alter des Spielers, Dauer der Vertragsverlängerung] zu berücksichtigen sind). Für die Bewertung der Gleichwertigkeit ist der Zeitpunkt des Vertragsabschlusses maßgeblich”.

[21] OGH 28.10.2016, 9 ObA 88/16f

[22] Ibid., The original German reads as follows: “Das Erstgericht gab dem Klagebegehren statt. Es kam zu dem Ergebnis, dass die Optionsvereinbarung unwirksam sei, weil sie nicht den Voraussetzungen des § 6 KV-ÖFB entspreche. Den Vertragsteilen würden durch diese Vereinbarung keine gleichwertigen Ansprüche eingeräumt. Der „Sideletter“ zum Spielervertrag, der ein höheres Gehalt für die Verlängerungszeit regelte, sei nicht statutengemäß unterfertigt worden und daher nicht wirksam geworden; darüber hinaus sei diese Gehaltserhöhung im Verhältnis zur Dauer der Verlängerung auch nicht angemessen. Das Berufungsgericht gab der Berufung des Beklagten dagegen keine Folge. Auf die Frage des rechtswirksamen Zustandekommens der im „Sideletter“ vorgesehenen Vereinbarung komme es hier nicht an, weil § 6 Abs 4 des KV-ÖFB die Gleichwertigkeit der Ansprüche beider Vertragsteile bereits zum Zeitpunkt des Vertragsabschlusses fordere und die dem Beklagten im Spielervertrag eingeräumte Option daher dem Kollektivvertrag widerspreche. Bei Abschluss des Vertrags sei nicht festgesetzt worden, mit welchen Verbesserungen der Kläger im Fall der Verlängerung rechnen könne; eine Lösungsbefugnis des Klägers sei auch nicht vorgesehen. Außerdem sei die Option wegen ihrer Dauer (Verlängerung doppelt so lang wie das befristete, eigentliche Vertragsverhältnis) nicht als gleichwertig anzusehen. Wenngleich das Interesse eines Fußballvereins an einer einseitigen Verlängerungsmöglichkeit insbesondere im Nachwuchsbereich plausibel sei, dürfe sich der Verein nicht vom Risiko der sportlichen Entwicklung des Spielers zu dessen Lasten (weitgehend) befreien. Hier sei die Option wegen der doppelten Länge der ursprünglichen Vertragsdauer schließlich auch im Fall einer Erhöhung des Entgelts um nur 15 % (wie im „Sideletter“ vorgesehen) nicht als ausreichend gleichwertig anzusehen“.

[23] Art. 6 RD 1006/1985 reads as follows: “La relación laboral especial de los deportistas profesionales será siempre de duración determinada, […].Podrán producirse prórrogas del contrato, igualmente para una duración determinada, mediante sucesivos acuerdos al vencimiento del término originalmente pactado. Solamente si un convenio colectivo así lo estableciere podrá acordarse en los contratos individuales un sistema de prórrogas diferente del anterior, que en todo caso se ajustará a las condiciones establecidas en el convenio”.

[24] L. O’Leary, Employment and Labour Relations Law in the Premier League, NBA and International Rugby Union, T.MC. Asser Press, 2017, p.204.

[25] Ibid., p.99.

[26] ibid., p.208.

[27] Eastham v Newcastle United Football Club [1964] Ch 413, p. 428, cited in in Leanne O’Leary, Employment and Labour Relations Law in the Premier League, NBA and International Rugby Union (2017), 5.

[28] S Gardiner, M James, J O’Leary and R Welch with I Blackshaw, S Boyes and A Caiger, Sports Law – Third Edition (2006), 494.

[29] [1974] 3 All ER 616

[30] Ibid.

[31] Ibid.

[32] Ibid.

[33] [1975] 1 All ER 237.

[34] Ibid., 238.

The first part of our “Unpacking Doyen’s TPO deals” blog series concerns the agreements signed between Doyen Sports and the Dutch football club FC Twente. In particular we focus on the so-called Economic Rights Participation Agreement (ERPA) of 25 February 2014. Based on the ERPA we will be able to better assess how TPO works in practice. To do so, however, it is necessary to explore FC Twente’s rationale behind recourse to third-party funding. Thus, we will first provide a short introduction to the recent history of the club and its precarious financial situation. 

I. FC Twente 2004-2015

When local millionaire Joop Munsterman took over FC Twente in December 2003, the club was on the verge of bankruptcy. Munsterman certainly did not lack ambition and wanted to turn FC Twente into the best club of the Netherlands. With help of external investors, he quickly managed to reinforce the team with quality players such as the Swiss international Blaise N’kufo, the man who would later become FC Twente’s all-time top scorer. A few years later, in 2010, FC Twente won the Dutch League (Eredivisie), thereby defying the decade long dominance of Ajax, PSV and Feyenoord. By now the club was considered an example for a modern, innovative and successful football governance, and an inspiration for other smaller clubs. Through “excellent scouting” it managed to attract players from all over the world capable of winning the league and securing a spot in Europe’s most important and lucrative club competition, the UEFA Champions League. Moreover, Twente’s success on the field also led to financial success off the field. For example, Costa Rican international Bryan Ruiz was signed from KAA Gent in 2009 for €5 million and sold to Fulham in 2011 for €12.5 million, which makes for a healthy profit of €7.5 million.

The taste of the 2010 success and the additional earnings for participating in the Champions League created hunger for more. The club started spending large amounts of money on the transfer market, including the signings of Leroy Fer in 2011 for €5.5 million and Dusan Tadic in 2012 for €7.7 million. Furthermore, with the ambition of playing the Champions League consistently, the club decided to renovate and expand its stadium. Although FC Twente is the owner of the stadium, it did not have the means to finance the renovation. Therefore, it had recourse to external investors, including the municipality of Enschede, who provided a loan of €20 million.

Fast-forwarding to 2015, little is left of that over-ambitious FC Twente. The club currently finds itself in the lower ranks of the league table and is fearing relegation to the second league. Much-needed revenue from Champions League participation did not materialize since the club was not able to qualify after 2011 and many of the recent signings did not lead to transfer profits. In May 2014 the Dutch FA, KNVB, placed FC Twente into the so-called “Category 1”, a category dedicated to clubs in financial difficulties, which could face disciplinary sanctions if the financial situation is not improved swiftly.[1] In early 2014, FC Twente had probably taken on way too much financial risk and was in dire need of fresh money. In this context, the ERPA with Doyen was dearly needed to repay outstanding short-term debts. 

 Timeline.jpg (64KB)

II. The ERPA dissected

The ERPA between FC Twente and Doyen Sports is dated from 25 February 2014. The ERPA consists of two separate agreements: a first general agreement signed on 27 December 2013; and a second agreement added on 25 February 2014. By means of the ERPA, Doyen purchased part of the economic rights of seven players who at the time were all registered and playing for FC Twente, namely Castaignos, Promes, Ould Chikh, Mokhtar, Eghan, Ebecilio and Tadic. In return, Doyen provided FC Twente a fee for each of the players for a total amount of €5 million.

As stated, Doyen did not obtain all of the economic rights of the players, but only a share. The share acquired by Doyen varied from player to player and fluctuated between 10% (for Tadic) and 50% (for Castaignos). At first glance, the mechanism seems relatively straightforward: once a player is sold to another football club Doyen receives an amount equal to its share of the economic rights attached to the player. However, the story is a bit more complex. The ERPA provides for a minimum fee per player that is superior to the amount Doyen invested in that player. In other words, regardless of the transfer fee paid, Doyen will always make a profit. The bank always wins! Doyen’s minimum fee for each player has been set at a basic amount equivalent to the fee granted to FC Twente plus a fixed 10% to be increased at an annual rate of 10% elapsed as from 15 November 2013.  

The ERPA further sets out different scenarios which are described below.

A. Scenario 1&2: The Transfer offer

The first eventuality, and most likely the mutually desired one, is the transfer of the player. Under the first agreement (this part was central to its amendment), in case of a transfer offer for one of the players concerned by the agreement, FC Twente could choose to accept or reject the offer. If it accepted the offer, Doyen was entitled to the agreed share of the proceeds of the transfer. If this amount was inferior to Doyen’s minimum fee, then Twente had to pay the fee. In case Twente would refuse the offer, no further contractual consequences were foreseen. (Scenario 1). It appears from the latest release of footballleaks (available here) that the first agreement actually entailed a different scenario, which was later deleted from the ERPA and inserted in an additional agreement. This second agreement, added later to the ERPA and not communicated to the KNVB, radically changed the transfer scenario (Scenario 2). 

Under the second agreement, in case of a transfer offer equal or superior to the minimum market value of the player is received and rejected by the club, FC Twente is obliged to compensate Doyen by an amount equivalent to Doyen’s share of the proposed transfer fee. By way of illustration, say a given football club offers FC Twente €10 million for Castaignos, while his minimum market value is €8 million (see table 1). Should FC Twente reject this transfer offer it will be obliged to compensate Doyen for an amount of €5 million (50% of the proposed transfer fee of €10 million). Similarly, if the proposed transfer fee is equal or above 50% of the minimum market value and FC Twente rejects it, it could also be obliged to compensate Doyen. Using Castaignos again as an example, say the proposed transfer fee was not €10 million but €4 million. This amount is exactly 50% of Castaignos’ minimum market value. Should FC Twente decide to reject this offer and Doyen decides to make a written request to be compensated, Doyen could claim €2 million from FC Twente. 

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B. Scenario 3: Exchange of players

If Twente decides to exchange a player covered by the ERPA against another player, to which an additional fee might be added, the agreement foresees that Doyen will have three different options. First, Doyen can, in case of a partial exchange involving a complementary fee, decide to keep the same share of the economic rights attached to the new player and get the agreed share of the fee received by the club. If a one-to-one exchange takes place, Doyen can only keep the same share of the economic rights attached to the new player. Finally, in both types of exchanges, Doyen has the option to demand that FC Twente pays the minimum fee for the player.

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C. Scenario 4: A loan

In the third scenario, the player is loaned out to another club. If the loan fee received is higher than the wage bill of the player at FC Twente, the club makes a profit on the loan. Consequently, Doyen is entitled to receive a percentage of the loan fee. Doyen’s share of the loan fee is calculated on the basis of its share in the economic rights of the player concerned. If Castaignos were to be loaned out to another club and FC Twente receives a loan fee higher than its salary, Doyen would receive 50% of the profit on the loan fee.

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D. Scenario 5: Renewal of the player contract by Twente

The fourth scenario is also modified by the additional agreement signed on 25 February 2014. Under the original agreement, if the player renews his contract with FC Twente, Doyen simply keeps the same share of the economic rights for the total length of the new contract. However, Doyen does have the right to choose a new put option date or, importantly, simply stick to the old put option date (on the put option date see below scenario 6). Under the additional agreement, Doyen also has the possibility to request that the minimum fee be paid by FC Twente. 

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E. Scenario 6: The Put Option

In the ERPA, Doyen and FC Twente have agreed a put option, this alternative is covered in Scenario 5. A put option is a right given to Doyen to sell back its share of the economic rights linked to a player at FC Twente, at a given date and for a given price. The put option date was set at 31 August 2015 for all seven players of Twente(see table 1). To use a concrete example, Ebecilio was not sold before 31 August 2015. In fact, he currently still plays for FC Twente. In accordance with the particular conditions of the ERPA, Doyen had the right to sell to FC Twente its share of the economic rights of Ebecilio, and FC Twente would have the obligation to buy back those rights, for a fixed put option fee. According to Table 1, the put option fee for Ebecilio is €780.000. Whether Doyen actually exercised this option in the Ebecilio case is not clear, but it would have guaranteed the investment company a profit of €180.000. 

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F. Scenario 7: The player is unable to remain a professional football player

Point 8 of the ERPA foresees that FC Twente shall enter into a policy with an insurance company insuring the risk of the player’s death and the risk of the player suffering an incapacitating injury or any injury which may patently reduce the player’s ability as a professional football player. In the case of such events, Doyen will receive an amount equal to the put option fee, irrespective of whether the insurance policy claims are lower or higher than the put option fee.

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G. Scenario 8: The player becomes a free agent

Point 9.1 of the ERPA stipulates that FC Twente “shall use its best endeavors to prevent the Player from becoming a free agent and acknowledges that such endeavors are considered normal and ordinary business practice for professional football clubs”. The notion of “best endeavors” remains undefined and mysterious. Nonetheless, in the case a player’s contract expires and he becomes a free agent, FC Twente will be obliged to pay Doyen the minimum fee agreed in the particular conditions (see table 1). 

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H. Scenario 9: The economic rights are assigned to a third-party

After the signature of the ERPA, it is still possible to trade the economic rights attached to the same players with third parties. However, if Doyen wishes to sell the economic rights of one of the seven players, it would firstly have to offer those rights back to FC Twente on the same conditions as those that would be offered to third parties. Moreover, Doyen may not assign any share of the players’ economic rights to any Dutch club or to any other third party which is not suitable to hold them. In turn, should FC Twente wish to sell (part of) the remaining economic rights of a player, it would firstly have to offer these rights to Doyen before offering them to another assignee. 

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I. Scenario 10: Termination of the contract by the player without just cause

Final scenario, if the player terminates his contract without just cause (see Article 17 FIFA RSTP), the ERPA foresees that FC Twente shall pursue a claim for unlawful termination of the employment contract against the player before any competent judicial institution.^[2] If the relevant judicial body grants compensation to FC Twente, Doyen will get a share of the compensation equivalent to its share of the economic rights of the player. In the event the share of the compensation awarded to Doyen is less than the minimum fee, FC Twente will have to match the minimum fee. 

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III. The aftermath of the ERPA

On 26 November 2015, FC Twente told the Dutch press that it had bought off the TPO contract with Doyen. On that same day, footballleaks published a Settlement Agreement between Doyen and FC Twente. According to this settlement, the parties agreed to terminate the ERPA on the condition that Twente would pay to Doyen a compensation of €3.344.519. Whether the settlement agreement was signed by the two parties remains unknown since it does not include a date nor any signatures.

What is known is what happened to the seven players whose economic rights were partly sold to Doyen. Based on the information provided by the German website http://www.transfermarkt.de/, we made the following table summarizing the situation:

Since the signing of the ERPA (27 December 2013), five players have been transferred to other football clubs and two (Eghan and Ebecilio) are still under contract at FC Twente. Two players, Tadic and Promes, were sold for a relatively high fee (€13 million and €11.4 million respectively). For Tadic’s transfer, it is known that Doyen received a 10% of the transfer, since the fee was higher than the minimum fee. In fact, footballleaks provides a document called “Liquidation of Economic Rights Participation - Tadic”, holding that Doyen received €1.091.250 from Tadic’s €13 million transfer to English side Southampton. Doyen’s interest in Tadic was 10%. In principle this would mean that Doyen would receive 10% of €13 million, i.e. €1.3 million. However, based on article 7.2. of the ERPA, agent fees, solidarity contributions and the claim of another club (Groningen) were deducted to arrive at the final figure. The same process will have applied to the transfer of Promes.

Castaignos, Chikh and Mokhtar were sold for relatively low transfer fees (€2.5 million, €1.5 million and €1 million respectively). It is now possible to predict what truly happened to Doyen’s share of Castaignos’ economic rights. As Doyen’s share of the economic rights attached to Castaignos was 50% (see table 1), it should get €1.25 million (50% of €2.5 million). However, the particular conditions also stipulate that in such a case Doyen would be awarded the minimum fee, on 1 July 2015 it amounted to €1.8 million. Because Doyen’s share of Castaignos’ transfer fee (€1.25 million) is lower than the minimum fee (€1.8 million), it probably received the latter.

As to Ebecilio and Eghan, both remained at FC Twente after the put option date passed (31 August 2015), whether Doyen exercised its put option or not remains unknown. If Doyen has exercised this option, it would have received €780.000 for Ebecilio and €650.000 for Eghan.

Typically, these fees are not paid immediately at the date of the transfer. Instead the payment is divided in separate instalments. It is possible (even likely in light of its price tag), but we lack definite information on this point, that the settlement agreement between Doyen and FC Twente covers all outstanding instalments regarding previous transfers.  

IV. Is the ERPA in breach of KNVB and FIFA Regulations?

The Dutch media is full of rumours about the terrible things that are about to happen to FC Twente. Is the club going to go bankrupt? Or, will it be “only” losing more points in an already difficult battle to save its place in the Eredivisie? Until now, with few exceptions, very little substantial legal analysis has been provided. The KNVB and FIFA are the two main private regulators susceptible of going after FC Twente, though UEFA has also been mentioned in the press, but we are unable to identify under which legal basis it could get involved in the matter. One thing is certain, entering an ERPA with Doyen is a losing bet for a club. It takes huge financial risks and is the only actor facing disciplinary sanctions as Doyen escapes the jurisdiction of the football associations.

A. Has FC Twente breached the rules of the KNVB?

Pursuant to Article 57(1) of the KNVB Regulations, it is prohibited for clubs to reach any agreement that allows a third party to influence the club’s independence regarding the transfers of players. This provision is a mandatory transposition by the Dutch FA, as provided by article 1.3 of the FIFA Regulations on the Status and Transfer of Players (RSTP), of article 18bis RSTP (See below). The KNVB has stated that it was aware of the existence of the ERPA between FC Twente and Doyen and that it even intervened to prevent unauthorized influence by Doyen. However, the Dutch FA was apparently not informed of the existence of the additional agreement signed between Doyen and FC Twente and a KNVB insider was quoted saying that those provisions “appear to show that Doyen does exert influence on FC Twente”. Yet, at the time of writing, it remains unclear whether FC Twente is subjected to a formal investigation by the KNVB.

In fact, the difference between the original agreement and the additional agreement is flagrant and crucial. In the former case FC Twente was entirely free to refuse a transfer offer whatever its amount, while, in the latter, if an offer reached a minimum amount, the club was forced to sell the player or to pay out Doyen’s share on the offer. At this point in time, all parties must have been perfectly conscious that FC Twente was unable to disburse any cent to buy back the economic rights owned by Doyen. Hence, its transfer policy was entirely at the goodwill of the investment fund and the potential buyers. The fact that FC Twente did not disclose the additional agreement to the KNVB obviously vindicates this assessment. Moreover, the latest release by footballleaks shows that the original ERPA signed in December 2013 included some of the most controversial provisions regarding transfers. These were later redacted out of the agreement and inserted in the additional agreement, probably to circumvent the control of the KNVB. It will be extremely difficult for the KNVB to deny that Doyen exercised a substantial influence on FC Twente’s transfer decisions regarding the players subjected to the ERPA. The potential sanctions are listed in Article 11 of the License Regulations (page 78-90 of the KNVB Regulations) and include a fine, a points deduction or withdrawal of the license. Having in mind the severe financial situation FC Twente finds itself in, this could lead to the full-blown bankruptcy of the club. 

B. Has FC Twente breached the FIFA Regulations?

FC Twente might be facing a FIFA sanction as well. As everybody knows by now, the FIFA ban on TPO entered into force on 1 May 2015.[3] However, the ERPA between FC Twente and Doyen is not falling under the ban, as it is not applicable retroactively. Hence, its conformity to FIFA regulations can only be assessed in relation to the FIFA Regulations on the Status and Transfer of Players (RSTP) in force at the signature of the ERPA. Back then article 18bis of the RSTP on third-party influence on clubs provided that: 

1.      No club shall enter into a contract which enables any other party to that contract or any third party to acquire the ability to influence in employment and transfer-related matters its independence, its policies or the performance of its teams.

2.     The FIFA Disciplinary Committee may impose disciplinary measures on clubs that do not observe the obligations set out in this article.

The whole legal debate will hinge, as for KNVB proceedings, on whether Doyen had the ability to influence the policy of FC Twente in employment and transfer-related matters. As we have argued above, the agreement points a loaded financial gun at FC Twente’s head each time a transfer offer of a certain amount is made, or when the club wishes to renew the contract of a player subjected to the ERPA. There is very little doubt that the transfer policy of a club in financial difficulties will be directly influenced by an investor, which can financially pull the plug on the club at virtually any time if it refuses to sell a player for a certain fee. The problem now for FIFA (and KNVB) will be to find an appropriate sanction for the club. It is the only party facing disciplinary proceedings (Doyen is out of FIFA or KNVB’s disciplinary reach). In the end, the supporters and players are the victims of a gross mismanagement of the club’s affairs due to the hubris of an irresponsible president. FIFA will also have to decide whether the many other ERPAs signed by Doyen (you can find a probably incomplete list of Doyen’s investment in players here), which include similar provisions (see Doyen’s model ERPA here) are also in breach of article 18bis. If yes, and we think there is no reason to decide otherwise, then a number of clubs (think Atletico, Sporting or Porto) might face  FIFA (or national FA) sanctions in the near future. This case is not ending with FC Twente, it is about all the clubs that have signed an ERPA with Doyen Sport in the past.

Additionally, it is also possible that FC Twente be found in breach of Annexe 3 of the FIFA RSTP, which regulates the use of the FIFA ‘Transfer Matching System’ (TMS) in the case of a transfer. The TMS is an online system that intends to make international transfers of players between clubs quicker, smoother and more transparent. Under article 4.4 of Annexe 3, in case FC Twente transfers a player (five of the players concerned by the ERPA have been transferred), it must introduce in the FIFA TMS a ‘Declaration on third-party payments and influence’. It is thinkable that FC Twente did not include the full ERPA in the TMS system and might also, therefore, face the FIFA sanctions provided in article 9.4 of the Annexe.

In a nutshell, FC Twente is now in deep(er) trouble because it decided to play Maltese roulette with a ruthless investor.

[1] In fact, the KNVB has already deducted six points from FC Twente in the 2014/15 season for financial mismanagement.

[2] Point 9.4 of the ERPA.

[3] More information on the TPO ban can be found in our previous Bogs, such as “Blog Symposium: FIFA’s TPO ban and its compatibility with EU competition law – Introduction”.

Editor's Note: Christopher is an editor of the Asser International Sports Law Blog. His research interests cover a spectrum of sports law topics, with a focus on financial regulatory disputes, particularly in professional football, a topic on which he has regularly lectured at the University of the West of England.

It is five years since the Union of European Football Associations (UEFA) formally introduced ‘Financial Fair Play’ (FFP) into European football through its Club Licensing and Financial Fair Play Regulations, Edition 2012. With FFP having now been in place for a number of years, we are in a position to analyse its effect, its legality, and how the rules have altered over the last half decade in response to legal challenges and changing policy priorities. This article is split into three parts: The first will look at the background, context and law applicable to FFP; Part Two will look at the legal challenges FFP has faced; and Part Three will look at how FFP has iteratively changed, considering its normative impact, and the future of the rules.

Background

Certain aspects of FFP were incredibly controversial from the outset. To a neutral observer, this might seem confusing: FFP is, ostensibly, a set of rules designed to make sure clubs pay their bills on time, stay solvent, and do not need to look to external benefactors to cover their losses. Leading sports economist Stefan Szymanski described insolvency as “a chronic problem in the world of professional Association football”, so, superficially at least, a regulatory response to this would seem natural and appropriate. Where the market fails, it is the regulator’s duty to respond.

UEFA’s President at the time, Michel Platini, said “You, we, the fans and football lovers, have no interest in seeing clubs, the real heritage of European football, disappear due to risky management”. This is a sentiment with which most fans would agree.

Accordingly, UEFA incorporated FFP into its existing licensing requirements, meaning any club that wished to compete in a UEFA competition would be required to meet the financial standards set by FFP. These standards would be overseen and enforced by a new body within UEFA’s administration called the ‘Club Financial Control Body’. The Club Financial Control Body would be further segregated into an Investigatory Chamber and an Adjudicatory Chamber.

So, why the controversy? The contentious aspect of FFP was its ‘break even’ requirement. The ‘break even’ requirement is a de facto soft salary cap, tying the maximum amount a club can spend (with defined exceptions) to its revenue generation. An overview of the break even requirement as originally conceived can be found here. In essence, “The break-even result for a reporting period is calculated as relevant income less relevant expenses’’.^[1] “Income” includes receipts such as gate receipts, sponsorship, broadcasting rights, commercial activities and player sales; “expenses” includes wages, the cost of purchasing players and the cost of finance.^[2]

Crucially, when FFP was first introduced, losses could not be met or offset by equity participants (i.e. owners). This was pertinent to the prevailing financial climate in football, in which certain clubs across Europe were spending unprecedented sums with the support of wealth benefactors, who would cover the clubs’ losses. Such spending was seen at clubs such as Chelsea, Manchester City, Paris Saint Germain, Monaco, Malaga and Anzhi Makhachkala, with mixed results on and off the pitch.

Thus FFP was accused of calcifying football’s competitive hierarchy^[3] and foreclosing smaller clubs from sporting and consequent business success. This debate has been played out over the last five years in the academic literature^[4] and in various legal fora. The rules and the mechanisms for enforcing the rules have become increasingly sophisticated as the years have passed. UEFA, perhaps in response to these challenges, has made gradual, iterative changes to FFP that have seen the rules soften to accommodate exogenous equity input in defined permissible circumstances. These changes will be looked at in greater depth in Part Three.

The challenge of EU law

FFP has been described ‘legally fragile’, which is an apt description. This is because the rules cannot be said to be unquestionably permissible under European Union (EU) law; nor can they be said to be categorically in breach of EU law. The rules exist in a regulatory ‘grey’ area – FFP, in its particularly in its original, more restrictive, guise, may or may not have been illegal. This is a question for a competent (judicial) authority to decide; however, as will be discussed in more detail in Part Two, the route to such a decision has been far from straight forward, and in the intervening years, FFP has changed substantially.

The essential legal questions to determine the legality of FFP are:

1. Does FFP breach EU competition law?
2. Does FFP breach EU free movement law?
3. Is there a sanctuary for any breach of EU law under the doctrine of the specificity of sport?

EU competition law

Article 101 of the Treaty of the Functioning of the European Union (TFEU) prohibits agreements that have as their object or effect “prevention, restriction or distortion of competition within the internal market”.^[5] This puts regulatory associations such as UEFA in a difficult position. It is the very nature of regulation that competition is restricted or distorted; indeed, it is the very purpose of regulatory rules that participants subject to those rules alter their behaviour accordingly, which has an inevitable consequence on the competitive landscape.

Consideration should also be given to Article 102 TFEU, which prohibits undertakings (and in some circumstances collections of undertakings, i.e. oligopolies) that are in a dominant position from abusing their market dominance.

In view of this friction, the European courts have developed, through the case of Wouters, the concept of regulatory ancillarity.^[6] This is the doctrine under which, subject to a test of proportionality, reasonability and necessity, even in circumstances where there is a prima facie breach of competition law by a regulatory body (in that particular case by the Dutch Bar Association), this may be permissible under EU competition law where the regulatory body in question “could reasonably have considered that that regulation, despite the effects restrictive of competition that are inherent in it, is necessary for the proper practice of the [relevant profession]”.

The applicability of Wouters to a sporting regulatory context is confirmed and clarified in the landmark Meca-Medina case. In considering whether a regulatory rule breaches competition law, the European courts must determine: 

1. Whether the rules are necessary for the proper conduct of the sport;
2. Whether the penalties are inherent to the restrictions in questions; and
3. Whether the effects of the rules are proportionate to the aims pursued.

Should UEFA be unable to meet the test under the regulatory ancillarity doctrine, there is an alternative exemption with a lower threshold to which it could look. Within Article 101(3) TFEU, there is an exemption for agreements which promote “technical or economic progress, while allowing consumers a fair share of the resulting benefit” as long as such restrictions do not (a) impose on the undertakings concerned restrictions which are not indispensable to the attainment of these objectives; or (b) afford such undertakings the possibility of eliminating competition in respect of a substantial part of the products in question.

It is open to UEFA to argue that FFP dampens inflation in football in a way that is for the improvement of the game and passes a benefit to ‘consumers’ (i.e. fans) by, for example, reducing the need for ticket price increases to sustain escalating players’ wages. This would perhaps be difficult for UEFA to establish, but the economics of FFP are complicated and second order effects should be borne in mind.

EU free movement – workers, services and/or capital 

The EU is built upon certain deeply enshrined freedoms. These include the free movement of workers (Article 45 TFEU), the free movement of services (Article 56 TFEU), and the free movement of capital. Any agreement that acts as an impediment to these freedoms is susceptible to a finding of illegality.

In order to be permissible under EU law, any rule or agreement that restricts any fundamental freedom must be:

1. Justified by a necessary objective in the general interest;
2. Suitable for achieving that objective; and
3. Proportionate.

In the case of sporting rules, the European courts have determined that the rule in question must not “go beyond what is necessary for achieving the aim pursued”,^[7] which is to reiterate that it must be proportionate – a recurrent theme in considering the legality of rules made by the governing bodies of sport, such as UEFA.

The criteria to be met by UEFA in establishing that FFP does not breach EU fundamental freedoms is in line with the threshold to be met in establishing compliance with EU competition law: FFP must be necessary, suitable and proportionate.

However, in the case of free movement law, it is far from obvious that FFP will have a substantive impact on fundamental freedoms. In previous writing on the subject, I have made the following analogy:

The restriction does not emanate from the rule per se, rather by the size of the club’s turnover; players are no more restricted from moving between clubs by FFP than this author is denied a Ferrari by his credit rating.^[8]

The specificity of sport under EU law

In the event that a competent adjudicative authority makes a prima facie finding that FFP is in breach of EU competition law or EU free movement law, there is still a possibility of an overall finding that FFP is not illegal under the doctrine of the specificity of sport; however, this would require the adjudicative body in question to row back considerably from the current position, and general trajectory, of the level of latitude granted to the governing bodies of sport by the European courts.

The concept of specificity will be familiar to all those with an interest in sports law and policy. It is the hypothesis under which, at its starkest interpretation, suggests governing bodies, not courts (or governments or other legislative bodies), are best placed to determine how sport should be run. Sports, it is argued, should have rule making autonomy. A more moderate view on specificity holds that due regard should be paid to the idiosyncrasies of the sports sector and the legitimate governance function played by governing bodies. 

The role of sports governing bodies, whose rules, as was the case with FFP, are often enacted in a broadly consensual way, with engagement, input and consent from key stakeholders, should be acknowledged and some due reverence should be paid to governing bodies' ability to regulate the sporting aspects under their aegis.

Indeed, the European Union had no express competence to in respect of sport until the introduction of Article 165 TFEU, a soft competency, which states that, “The Union shall contribute to the promotion of European sporting issues, while taking account of the specific nature of sport, its structures based on voluntary activity and its social and educational function.”

However, the distinction between elite football as being ‘purely sport’ and elite football as a business has become blurred in to the point of being indistinguishable; and the EU clearly has express competence to deal with business.

The general trend in decisions of the European courts has been to circumscribe self-determination by the governing bodies of sport. Through cases such as Bosman,^[9] Meca-Medina, and Bernard,^[10] the European courts have made it clear that sport cannot avoid or cherry-pick the applicability of EU law. This is acutely relevant in the case of FFP, which, after all, deals with how football clubs are run financially. There are obvious sporting consequences to this, but it is difficult to characterise FFP as anything other than a rule restrictive of the business of sport.

UEFA’s position on Article 165 is that “while sport is not ‘above the law’, there is now a provision in the Treaty itself recognising that sport cannot simply be treated as another ‘business’, without reference to its specific characteristics”. This is not an unreasonable position; sport is a unique industry in which, unlike other industries, the survival of competitors is important for any given club to flourish. Perhaps the courts could be persuaded that a carve-out based on specificity should be applicable to FFP – but this would require a seismic change of direction.

So it is incredibly unlikely that specificity as a discrete sui generis doctrine would give sanctuary to FFP were the rules deemed to be otherwise in breach of EU law. However, facts peculiar to the football industry (i.e. its specificity) should be considered as part of an assessment as to whether FFP is a proportionate mechanism to pursue UEFA’s objectives. As noted above, proportionality is a limb of the tests for derogations to EU competition and fundamental freedom law.

I have previously commented that: 

For football clubs, there is a strong correlational link between spending money and playing success. This has encouraged clubs to risk financial vulnerability in pursuit of improved match results, despite the mathematical impossibility of all clubs being able to improve their fortunes on the field. This innate instability has resulted in persistent insolvencies despite the remarkable growth in turnover seen in the professional game. Regrettably, when balance sheets weaken, the risk of insolvency increases; and once a club becomes insolvent, its survival is subject to the predilections of its creditors. The game’s governing bodies should aim to militate against…this volatility.

UEFA would doubtless argue that, given the specific nature of the industry it regulates, instituting a soft salary cap such as that implemented by FFP is a proportionate response. In that sense at least, the specificity of sport might be of consideration in the legality of FFP.

Conclusion 

It is difficult to say with any degree of conclusiveness whether FFP is legal or not. There are strong arguments either way. The marginal nature of the legal position has been problematic for UEFA and has undoubtedly led to the legal challenges to FFP over the last five years, which are discussed in greater depth in Part Two of this series.

The uncertain legal position, and the challenges generated by that lack of clarity has also, in all likelihood, shaped UEFA’s policy decisions as FFP has evolved in the years since its inception. These are discussed in Part Three of this series.

FFP has certainly been fertile ground for debate, and will likely continue to be so until such a time as there has been a determinative, binding view of its legality. When or whether this will happen remains to be seen.

^[1] Annex X, Club Licensing and Financial Fair Play Regulations, Edition 2012.

^[2] Ibid.

^[3] Thomas Peeters and Stefan Szymanski , 'Financial Fair Play in European Football ' [2014] 29(78) Economic Policy 343-390

^[4] See, for example, Serby, T. (2016) The state of EU sports law: lessons from UEFA’s ‘Financial Fair Play’ regulations, International Sports Law Journal 16(1–2):37–51; Flanagan, C (2013) A tricky European fixture: an assessment of UEFA’s Financial Fair Play regulations and their compatibility with EU law, International Sports Law Journal 13(1):148; Lindholm, J (2010) The Problem with Salary Caps Under European Union Law: The Case Against Financial Fair Play, Texas Review of Entertainment and Sports Law, Vol. 12.2, pp. 189-213

^[5] Noting that UEFA certainly constitute an association of undertakings in the relevant legal sense, see for example Case T-193/02 Piau (2005) ECR I-209, (2005) 5 CMLR 42 or EU Commission decision 2003/778/EC, 23 July 2003, Case COMP C.2-37.398 - Joint selling of the commercial rights of the UEFA Champions League §§ 106-107

^[6] As identified and defined by Whish and Bailey in Competition Law (OUP, 8th)

^[7] Case C-176/96, Jyri Lehtonen and Castors Canada Dry Namur- Braine ASBL v Fédération Royale Belge des Sociétés de Basketball ASBL (FRBSB) ECR (2000) I-2681

^[8] Flanagan, C (2013) A tricky European fixture: an assessment of UEFA’s Financial Fair Play regulations and their compatibility with EU law, International Sports Law Journal 13(1).

^[9] Case C-415/93 Union Royale Belge des Socie ́te ́s de Football Association ASBL v Jean-Marc Bosman (1995) ECR I-4921.

^[10] C-325/08 Olympique Lyonnais v Olivier Bernard and Newcastle United FC (2010) ECLI:EU:C:2010:143.