Editor’s note: Stefano
Bastianon is Associate Professor in EU Law and EU sports law at the University
of Bergamo and lawyer admitted to the Busto Arsizio bar. He is also member of
the IVth Division of the High Court of Sport Justice (Collegio di
Garanzia dello sport) at the National Olympic Committee.
1. On the
20th July 2018, the Court of Arbitration for Sport (hereinafter
referred to as “CAS”) issued its decision in the arbitration procedure between AC Milan
and UEFA. The subject matter of this arbitration procedure was
the appeal filed by AC Milan against the decision of the
Adjudicatory Chamber of the UEFA Financial Control Body
dated 19th June 2018 (hereinafter referred to as “the contested
decision”). As many likely know, the CAS has acknowledged that, although AC
Milan was in breach of the break-even requirement, the related exclusion of the
club from the UEFA Europe League was not proportionate. To date, it is the
first time the CAS clearly ruled that the sanction of exclusion from UEFA club
competitions for a breach of the break-even requirement was not proportionate.
For this reason the CAS award represents a good opportunity to reflect on the
proportionality test under Art. 101 TFEU and the relationship between the
landmark ruling of the European Court of Justice (hereinafter referred to as
“ECJ”) in the Meca Medina and Majcen affair and the very recent case-law of the CAS.
2.
According to the contested decision, AC Milan was guilty for failing to comply
with Articles 58 to 63 of the UEFA Financial fair-play regulations on the
break-even requirement. As a consequence the Adjudicatory Chamber has excluded
AC Milan from participating in the next UEFA Europe League for which AC Milan
has already qualified (2018-2019) at the end of the 2017-2018 Italian football
championship. The appeal filed at the CAS by AC Milan was mainly aimed at
seeking the annulment of the contested decision and ordering UEFA to enter into
a settlement agreement.
3. The
theory of proportionality test under Art. 101(1) TFEU in sports matters goes
back to the ECJ’s ruling in the 2006 Meca
Medina and Majcen case, while, in general terms, this theory was enunciated
by the ECJ for the first time in the 1994 DLG case and then
repeated in the 2002 Wouters and Others case
although in a slightly different way.
In the DLG case the ECJ
has ruled that:
«in order to escape the prohibition laid down in Article
85(1) of the Treaty, the restrictions imposed on members by the statutes of cooperative
purchasing associations must be limited to what is necessary to ensure that the
cooperative functions properly and maintains its contractual power in relation
to producers (…). In
addition, it is necessary to establish whether the penalties for non-compliance
with the statutes are disproportionate to the objective they pursue and whether
the minimum period of membership is unreasonable».
Eight years later, in the Wouters
and Others case the ECJ established the following principles:
(i) not every agreement between undertakings or
every decision of an association of undertakings which restricts the freedom of
action of the parties or of one of them necessarily falls within the
prohibition laid down in Art. 101(1) of the Treaty;
(ii) for the purposes of
application of that provision to a particular case, account must first of all
be taken of the overall context in which the decision of the association of
undertakings was taken or produces its effects; and
(iii) it has then to be considered whether the consequential effects
restrictive of competition are inherent in the pursuit of those objectives.
Unlike the DLG case, in the Wouters and Others ruling the ECJ did
not expressly refer to the concept of proportionality, but preferred to recall the
concept of inherent restrictions. However, from the overall wording of the ECJ,
it is clear that in both cases it tried to apply in the antitrust sector the
same theory of mandatory requirements developed in relation to the internal
market.
4. On the
contrary, in the Meca Medina and Majcen
case, the ECJ expressly referred to the concept of proportionality. In
particular, the ECJ has literally quoted the passage of the Wouters and Others ruling where it is
stated that:
«not every agreement between undertakings or every
decision of an association of undertakings which restricts the freedom of
action of the parties or of one of them necessarily falls within the
prohibition laid down in Article 81(1) EC. For the purposes of application of
that provision to a particular case, account must first of all be taken of the
overall context in which the decision of the association of undertakings was
taken or produces its effects and, more specifically, of its objectives. It has
then to be considered whether the consequential effects restrictive of
competition are inherent in the pursuit of those objectives (Wouters and Others, par. 97)».
However, unlike the Wouters and Others case, the ECJ has added that the effects restrictive of
competition must also be proportionate to the objectives pursued.
More specifically, in anti-doping issues the test of proportionality is
a means to avoid the risk that a given rule (and the sanctions imposed in case
of a breach of it) may prove excessive by virtue of:
(i) firstly,
the conditions laid down for establishing the dividing line between
circumstances which amount to doping in respect of which penalties may be
imposed and those which do not, and
(ii) secondly, the severity of those penalties (in
the case at issue the penalty was a two year suspension).
Regarding the first point, the ECJ has underlined that the dividing line
was determined by the threshold of 2 ng/ml of urine above which the presence of
Nandrolone in an athlete's body constitutes doping. Based on documents before
the Court, the ECJ could conclude that the average endogenous production
observed in all studies then published was 20 times lower than 2ng/ml of urine
and that the maximum endogenous production value observed was nearly a third
lower. As a consequence, the ECJ rejected the argument according to which the
threshold was set at such a low level that it should have been regarded as not
taking sufficient account of the phenomenon of the endogenous production of
Nandrolone.
Regarding the second point, instead, the ECJ simply observed that:
«since the appellants have, moreover, not pleaded that
the penalties which were applicable and were imposed in the present case are
excessive, it has not been established that the anti-doping rules at issue are
disproportionate».
This is the most critical passage of the ruling as one could wonder what
would happen if the plaintiffs had contested the proportionality of the
penalties. In such a case the ECJ should have examined the substance of the
plea and stated whether the two year suspension was proportionate or not. However,
in the event that the ECJ had come to the conclusion that the penalty was not
proportionate, the anti-doping rules at issue should have been declared null
and void unless it was possible to prove that the conditions of Art. 101 (3)
TFEU were fulfilled.
The same reasoning was applied by the EU Commission in the ISU decision
concerning the Eligibility rules enacted by the International Skating Union. In
its decision, the Commission clearly underlined that:
«even if
the Eligibility rules and their consequential effects restrictive of
competition were inherent in the pursuit of any legitimate objective, the
sanctions imposed on athletes in case of breach of the Eligibility rules are
manifestly disproportionate» (par. 260).[1]
Thus, in sports matters there seem to be no doubt that the
proportionality test must involve also the sanctions imposed on athletes. As
already said, in the ISU decision,
the Commission has clearly underlined that the Eligibility rules were not
proportionate to achieve legitimate objectives in particular in view of the
disproportionate nature of the ISU’s ineligibility sanctions. More specifically
the Commission has pointed out that:
«the 2014
Eligibility rules provided for the heaviest sanction of a lifetime ban, even
for the first infringement of the Eligibility rules, without taking into
consideration the circumstances of the case (…). For the purposes of the
assessment of the proportionality of the Eligibility rules it is however not
relevant how many times the ISU has actually imposed sanctions. The fact that a
lifetime ban was imposed only once on an athlete may even underline the strong
deterrent effect of the sanctions. Although the sanctions system has been
modified in the General Regulations 2016, the sanctions remain
disproportionately punitive, as they provide for periods of ineligibility that
go up to five years for negligent participation in unauthorized events, up to
10 years for athletes that knowingly participate in unauthorised events and a
lifetime ban for athletes participating in unauthorised events endangering,
inter alia, the ‘ISU jurisdiction’. These are disproportionately heavy
sanctions in particular in view of the fact that on average a professional
athlete's entire career is around eight years long. Also the imposition of a
five-year ban is therefore likely to impact very heavily on an athlete's career
who, after years of training and sacrifices, loses the possibility to gain
income through the participation in the ISU's international events».
This reasoning clearly shows that the Commission has considered the
sanctions imposed to be disproportionate, not simply the rule forbidding
participation in unauthorized events.
5. To date,
neither the EU Commission nor the ECJ has had the opportunity to comment on the
compatibility of the UEFA Financial Fair-play rules with EU Competition law.
Indeed, regarding the Striani affair,
the Commission has dismissed the
complaint on procedural grounds only (the lack of Community interest), while
the ECJ has declared a
reference for preliminary ruling send by a Belgian court manifestly
inadmissible and therefore did not rule on the substance of the case. As a
consequence, to date there is no European formal decision that has assessed the
compatibility of UEFA Financial Fair-play rules with EU law.
This opportunity, however, was offered to the CAS in the context of the Galatasaray/UEFA award
(2016/A/4492). To fully understand the case one must go back to the 2nd
March 2016 when the Adjudicatory Chamber of the UEFA Financial Control Body
issued a decision in which it decided that Galatasaray has failed to comply
with the terms of the Settlement Agreement and imposed on Galatasaray an
exclusion from participating in the next UEFA Club competition for which it
would otherwise qualify in the next two seasons.
On the 11th March 2016, Galatasaray filed an appeal with the
CAS to challenge the decision of the Adjudicatory Chamber of the UEFA Financial
Control Body. Basically, the arguments put forward by Galatasaray were based:
(i) on the alleged incompatibility of the break-even rule with EU law
(namely, Art. 101 TFEU on cartels, Art. 102 TFEU on abuse of dominant position,
Art. 63 TFEU on free movement of capital, Art. 56 TFEU on free movement of
services and Art. 45 TFEU on free movement of workers); and, in the event the
first argument is rejected,
(ii) on
the alleged disproportionate nature of the sanctions imposed by UEFA.
It is very interesting to note that from the point of view of
Galatasaray the incompatibility of the break-even rule with EU law is something
different and completely divorced from the proportionate character of the
sanction. Indeed, the latter argument is invoked only in the event the first
argument is rejected. In other words, according to this line of defence, the
compatibility of the break-even rule with EU principles must be assessed only
on the basis of the alleged restrictive effects on competition and the (alleged
legitimate) objectives pursued, without considering the sanctions imposed.
In line with this approach, the CAS examined the two arguments put forward
by Galatasaray separately. Regarding the relationship between the break-even
rule and EU Competition law, the CAS reasoning can be summarized as follows:
(i) UEFA Financial fair-play regulations have neither the object nor the
effect of restricting competition because: (a) UEFA Financial fair-play
regulations do not prevent the clubs from competing among themselves on the
pitch or in the acquisition of football players; (b) they prevent the
distortion of competition by overspending; (c) clubs are free to pay the
players as much as the wish provided that salaries are covered by revenues; (d)
large dominant clubs have always existed and will always exist and therefore
the alleged ossification of the structure market is a nonsense; (d)
overspending is not completely prohibited because the break-even rule only
applies over rolling periods of three years; and
(ii) in any case, even assuming that the break-even rule has
anticompetitive effects, the objectives sought by UEFA Financial fair-play
regulations do appear legitimate and their alleged restrictive effects inherent
to the achievement of those objective. Put simply: if UEFA intends to control
the level of indebtedness of European football clubs, the imposition of limits
to spending beyond revenues is a natural element of a financial discipline
seeking that objective.
By contrast, regarding the proportionality of the sanction imposed by the
UEFA, the reasoning of the CAS is completely based on external factors which
allegedly affected the finances of Galatasaray (i.e., the Syrian refugee crisis, the terrorist attacks in Turkey,
the Turkish major match-fixing scandal, the exchange rate and rate
fluctuations, the national economic downturn in Turkey, the inefficiencies of
the market and the management changes). However, according to the CAS, this
argument cannot be accepted because the club failed to provide the Panel with the
accounting evidence of how and in which proportion each of these factors would
have caused the break-even deficit. Moreover, the CAS has underlined that the
sanction was not disproportionate because:
(i) it was imposed as a sanction for a
second violation (i.e., after the
Settlement Agreement which presupposes the previous violation of the rules on
financial fair play);
(ii) an exclusion limited
in time (one season) from the UEFA competitions is consistent with the
principle of equal treatment and fair competition, as it protects the club
respecting the UEFA Financial Fair-play regulations and does not prevent future
compliance with them.
It follows from the foregoing that, according to the CAS the
proportionate character of sanctions listed in the UEFA Financial Fair-play
regulations cannot affect the evaluation of the legitimacy of these regulations
under Art. 101 TFUE.
6. To some
extent the AC Milan/UEFA case is
similar to the Galatasaray case. Both
clubs have failed to comply with the break-even requirement; both clubs have
been sanctioned with the exclusion for one season from the UEFA competitions;
both clubs have contested the proportionality of the sanction. Unlike Galatasaray,
however, AC Milan was denied the possibility to enter into a Settlement
Agreement[2].
On the contrary, it is worthy to note that the CAS has confirmed the decision
of the Adjudicatory Chamber of the UEFA CFCB, which was rendered on the 19th
June 2018, establishing that AC Milan had failed to fulfil the break-even
requirement. However, it has annulled the decision to the extent that it has
excluded AC Milan from participating in the next UEFA Club competition for
which it would otherwise qualify in the next two seasons (i.e., the 2018-19 and 2019-20 seasons), arguing that the sanction
was not proportionate. As a consequence, the CAS has referred back the case to
the Adjudicatory Chamber to issue a proportionate disciplinary measure. The
press release issued on the 20th July 2018 (the
full text of the award is not yet available) indicates that the decision to
annul the sanction and refer back the case to the Adjudicatory Chamber is based
on the following arguments:
(i) some
important elements regarding the financial situation of the Club and the recent
change in the Club’s ownership have not been properly assessed by the
Adjudicatory Chamber, or could not be properly assessed at the moment when the
contested decision was rendered;
(ii) the
Adjudicatory Chamber is in a better position than the CAS Panel to issue a new
proportionate disciplinary measure on the basis of the current financial
situation of the Club.
Despite the differences between the two cases, it is interesting to note
that in the Galatasaray case the CAS
assessed the sanction imposed by the Adjudicatory Chamber on the merits and
found it proportionate. To the contrary, in the AC Milan case the CAS has
assessed the sanction on the merits only to state that it was not
proportionate, but refrained from saying which other sanction could be
considered proportionate, arguing that the Adjudicatory Chamber is in a better
position than the CAS to issue a new proportionate disciplinary measure. In
other words, the CAS seems to say that it has no problem to assess the
proportionality of a given sanction ; however, if it deems that the sanction is
not proportionate, it is not for the CAS to replace the penalty imposed with
another sanction.
7. Comparing
the awards in the Galatasaray and AC Milan cases with the ruling in Meca Medina and Majcen affair some
aspects deserve to be underlined. First of all, according to the case-law of
the ECJ in sports matters, the evaluation of the restrictive effects of a rule
necessarily presupposes the analysis of the proportionate character of the sanction
imposed in the event of violation of that rule. On the contrary, according to
the case-law of the CAS the analysis of the proportionate character of a
sanction necessarily presupposes a positive evaluation of the legitimate
character of the objectives pursued by the rule and its inherence to those
objectives. In other words, it seems that according to the CAS the
disproportionate nature of a sanction is not capable of affecting the
legitimacy of the rule whose violation determined that sanction. Although the
full text of the award is not yet available from the AC Milan/UEFA case it emerges that the disproportionate nature of
the penalty imposed only resulted in the referral of the case to the
Adjudicatory Chamber for the imposition of another sanction. Although apparently
in line with the Wouters and Others
case, this approach is clearly in contrast with the Meca Medina and Majcen case and, more generally, with the whole
theory of mandatory requirements in the field of the internal market.
To this regard it is of paramount importance not to underestimate the
fundamental difference between rules which are applied a priori and rules that are applied a posteriori. As also recognized by the CAS in the well-known ENIC case:
«rules
that are applied a priori tend to
prevent undesirable situations which might prove difficult or useless to deal
with afterwards, rather than imposing a penalty on someone guilty of something.
On the other hand, rules that are applied a
posteriori are bound to react to specific behaviours. For example, under EC
law and several national laws, rules on mergers are applied a priori, whereas rules on abuses of
dominant position are applied a
posteriori. Merger operations are checked before they actually take place,
and are blocked if the outcome of the merger would be the establishment of a
dominant position because of the possible negative consequences on the market
and not because the individuals owning or managing the merging undertakings are
particularly untrustworthy and the company after the merger is expected to
abuse of its dominant position (…). All
such a priori rules are applied on a preventive basis, with no appraisal
of any specific wrongdoing and no moral judgement on the individuals or
companies concerned. On the other hand, rules setting forth obligations and
corresponding penalties or sanctions, such as criminal or disciplinary rules,
can be applied only after someone has been found guilty of having violated an
obligation».
In this context it is clear that rules applied a posteriori (such as the UEFA Financial Fair-play regulations)
consist of both the obligations set forth and the corresponding sanctions. In
addition, it is not possible nor correct to arbitrarily separate the obligation
from the sanction. Indeed,
the fact that in the Meca Medina and
Majcen ruling the proportionality test was referred precisely to the
restrictive effects and not to the prohibition of doping cannot be ignored. The
prohibition of doping as such, without the corresponding sanctions, does not have
any restrictive effect on competition.
Secondly, the sanctioning system envisaged by the UEFA does not provide
clear and transparent criteria as to how the sanctions are to be applied. There
is no scale to measure and define the seriousness of the violation and no
provision illustrating the relationship between the violation and the sanction
that can be imposed. It is interesting to note that the same reasoning was
applied by the EU Commission in the ISU
decision. And everyone knows the outcome of this case.
Thirdly, the choice of the CAS to refer back the case to the
Adjudicatory Chamber could mean that the AC
Milan/UEFA case is not yet closed definitively. According to Art 29 of the
Procedural rules governing the UEFA Club Financial Control Body in case of a breach
of the UEFA Financial Fair-play regulations the clubs may be sanctioned with
the following measures: a) warning, b) reprimand, c) fine, d) deduction of
points, e) withholding of revenues
from a UEFA competition, f)
prohibition on registering new players in UEFA competitions, g) restriction on the number of players
that a club may register for participation in UEFA competitions, including a
financial limit on the overall aggregate cost of the employee benefits expenses
of players registered on the A-list for the purposes of UEFA club competitions, h) disqualification from competitions
in progress and/or exclusion from future competitions, i) withdrawal of a title or award. If the exclusion from UEFA
competitions is certainly one of the most serious sanctions, there are other
particularly serious penalties, such as the prohibition on registering new
players in UEFA competitions or the restriction on the number of players that a
club may register for participation in UEFA competitions. Consequently, since
the seriousness of the ascertained infringement seems to exclude that the
Adjudicatory Chamber may decide to apply a very minimal sanction (such as a
warning or a reprimand), it cannot be excluded that the new sanction will also
be perceived as excessive and therefore disproportionate. And in this case, at
least in theory, nothing could prevent AC Milan from appealing to the CAS by
challenging again the disproportionate character of the (new) sanction.
8. The Meca Medina and Majcen ruling presents
many ambiguities and for this reason is rightly criticized. To say nothing else,
it cannot be ignored that the extension of the proportionality test also to the
sanctioning system provided for by sports regulations raises at least two
fundamental problems: (a) firstly, to establish which criteria are to be used
to determine the proportionate character of the sanctions; and (b) secondly,
the opportunity to invest judges or arbitrators of such a task. However, the
recent case-law of the CAS on the proportionality test of UEFA Financial Fair-play
regulations seems to reveal no less serious concerns and perplexities.