Mohamed Dahmane is a professional football player of French-Algerian origin, who has played for a variety of European clubs, including French club US Mauberge, Belgian club RAEC Mons and Turkish club Bucaspor. However, he will mostly be remembered as the player whose legal dispute with his former club (Belgian club KRC Genk) revived the debate on football players’ labour rights.  

Journalists wasted no time in comparing it to the Bosman case.[1] Fair enough, Dahmane and Bosman do show some striking similarities: the two cases concerned players employed by mediocre Belgian football clubs claiming their right to be treated as normal workers. Furthermore, in both cases the respective Courts met (to a large extend) the players’ demands. The Bosman case not only changed labour conditions for all footballers, it shook the whole transfer system. In Dahmane, the case is essentially about whether it is justifiable to have a special law that obliges professional football players who unilaterally break their players’ contract to compensate their club for up to 36 months of salary. After all, “normal” workers are only obliged to pay a 12 months of salary compensation in an identical situation. Whether the Dahmane case will have the same weight as Bosman depends on the effects of the judgment on footballers in Belgium, but also on the European football sector in general. Therefore, a close look at the ruling is needed to understand its potential consequences.

Dahmane signed a four-year contract with KRC Genk on 1 July 2007, he then unilaterally terminated the contract in January 2008 following a row with his coach. Due to the contract termination, KRC Genk demanded a compensation amounting to EUR 878.888,88. The demand was based on Articles 4 § 4 and 5 § 2 of the Law for Professional Athletes and the Royal Decree of 13 July 2004. Indeed, according to the Royal Decree, the compensation had to be equal to 36 months of salary. Dahmane disagreed with KRC Genk’s demands and argued that the compensation should be calculated in accordance with Article 40 § 1 of the general Labour Agreements Law. Pursuant to this Article the severance pay can only amount to a maximum of 12 months of salary.

In a judgment of 25 May 2009, the Labour Court (Court of first instance) concurred with the demands of KRC Genk and ordered Dahmane to compensate KRC Genk for EUR 878.888,88.

Dahmane placed an appeal with The Court of Labour arguing that Article 4 § 4 of the Law for Professional Athletes and the Royal Decree breached Articles 10 and 11 of the Belgian Constitution on equal treatment and non-discrimination.[2] KRC Genk, for its part, argued that the difference between labour agreements of professional footballers on the one hand and “normal” labour agreements on the other is based on the ‘specific character of labour agreements of professional footballers and the specific character of sport in general’. Thus, the ‘specificity of sport’ would imply a special status for sport, whereby ‘normal’ law (i.e. the general Labour Agreements Law) cannot be applied unabridged. KRC Genk highlighted that to achieve the objectives inherent to football, which include avoiding competition distortions and the preservation of the stability of participating sport clubs, certain specific measures, such as the Royal Decree of 2004, can be taken in order to safeguard the legal certainty of labour relationships in the sport sector.[3]

The Court of Labour dismissed the arguments raised by KRC Genk, and held that the Royal Decree applies to all professional sports, not only to football, thereby denying validity to RKC Genk’s claims on the specificity of football.[4]

The Court agreed with KRC Genk that sport exhibits certain characteristics that can deviate from other labour relationships between employer and employee. However, the Royal Decree in question did not mention the specificity of sport in its text, nor does it provide any objective justifications as to why separate rules regarding compensation after a unilateral termination of a labour contract is necessary for the sport sector. Furthermore, the pursuit of financial profits, and the importance of preserving a fair competition have to be taken into account. Those economic objectives are not specific to the sport sector. Therefore, the Court saw no valid reason justifying a separate Royal Decree, when sport’s economic dimension can be equally covered by existing legislation. In other words, the same laws should be used to achieve the same objectives.[5]

As regards KRC Genk’s view that some rules preventing richer clubs from buying all the good players from smaller clubs, thereby distorting competition, are justifiable, the Court found that to be incorrect. Even though it is true that football’s transfer system is different from “normal” movement of workers, a distinction needs to be made between buying and selling of players on the one hand, and the unilateral termination of a player’s contract on the other hand. Here again the Court found the breach of the Constitutional Articles on equal treatment and non-discrimination based on the specificity of the football transfer system was not objectively justified in the Royal Decree.

The Court reminded the parties that the transfer system, which only allows two periods a year for clubs to buy and sell players, would limit the possibility for professional footballers to change clubs. Moreover, it highlighted that compensation equal to 12 months of salary comprises two transfer periods, and should therefore not be seen as unreasonable. Lastly, the Court took into account that the average career of a professional sportsman is relatively short (12 years according to KRC Genk and six to eight years according to Dahmane). A compensation amounting to 36 months of salary would, for many professional players, amount to 1/3 of the player’s revenue during his career and should therefore be deemed unjustifiable.[6]

Hence, the Court considered that a Royal Decree imposing a compensation of 36 months of salary on a player breaching his contract is disproportionate. Furthermore, the Court found the Royal Decree unjustifiable under the Constitutional principle of equal treatment and non-discrimination.

Dahmane revives a debate that has occupied academics in the fields of sports law, labour law and other fields of law for many decades. Is sport special and do its specificities oblige the European and national legislators to make laws that answer the specificities of sport? Should professional athletes be treated different from normal workers because sport is “special”? After Bosman, no transfer fees needed to be paid for players whose contract had ended and no limitations on the number of EU nationals were allowed to be imposed by the football clubs. In other words, the European Court of Justice (ECJ) found professional footballers to be very much like normal workers. Similarly, the Dahmane case lead the Belgian Court of Labour to deny any difference between professional athletes and normal workers regarding compensation after a unilateral termination of the labour contract. Even though Dahmane, as appellant, had asked the Court to raise a preliminary question to the ECJ on the compatibility of the law with the free movement of workers[7], the Court decided the case under Belgian law only.[8] It is therefore highly unlikely that Dahmane will have the same transnational effect as Bosman and mass unilateral contract terminations by professional athletes across the EU are not to be expected. 

Dahmane could set a precedent and encourage professional players in Belgium to simply break their contract, move to another club and pay compensation equal to 12 months of salary. This would be the worst-case scenario for Belgian clubs, since a compensation equal to 12 months of salary will nearly always be inferior to a transfer fee. On the other hand, mass unilateral contract terminations by footballers in Belgium would vindicate the need for specific regulation for football clubs.

In many ways the Belgian Court of Labour has “passed the ball” back to the Belgian legislator. Should the Belgian legislator feel that professional athletes, or footballers for that matter, have to be treated differently compared to normal workers then it could always decide to adopt specific laws or Royal Decrees for professional athletes. However, Dahmane will serve as a warning that these separate laws or Royal Decrees will need proper objective justifications as to why professional athletes are to be treated differently.

[1] See for example: Zaak-Dahmane krijgt allure van zaak-Bosman

[2] Arrest A.R. 2009/AH/199 (6 may 2014) Sub II, §1

[3] Ibid, Sub III §6

[4] Ibid, §7

[5] Ibid, §6

[6] Ibid, §7

[7] Ibid, Sub II, §1

[8] Ibid, Sub III §12

The decision of the Bundesgerichtshof (BGH), the Highest Civil Court in Germany, in the Pechstein case was eagerly awaited. At the hearing in March, the Court decided it would pronounce itself on 7 June, and so it did. Let’s cut things short: it is a striking victory for the Court of Arbitration for Sport (CAS) and a bitter (provisory?) ending for Claudia Pechstein. The BGH’s press release is abundantly clear that the German judges endorsed the CAS uncritically on the two main legal questions: validity of forced CAS arbitration and the independence of the CAS. The CAS and ISU are surely right to rejoice and celebrate the ruling in their respective press releases that quickly ensued (here and here). At first glance, this ruling will be comforting the CAS’ jurisdiction for years to come. Claudia Pechstein’s dire financial fate - she faces up to 300 000€ in legal fees – will serve as a powerful repellent for any athlete willing to challenge the CAS.

Personally, I have, to put it mildly, mixed feelings regarding this decision. On the one hand, I am relieved that the BGH did not endorse the reasoning used by the Landgericht München in its ruling, challenging the necessity of forced CAS arbitration. But, on the other hand, I am rather disappointed that the BGH failed to endorse the balanced reasoning used by the Oberlandesgericht München in its decision (I translated the relevant parts of the ruling here). I believed this framing of the case would have offered a perfect vantage point to force a democratic reform of the CAS without threatening its existence. For those concerned with a potential flood of appeals, this could easily have been avoided by barring Claudia Pechstein to prevail on the merits of the case (or through preclusion for example). There was room for mild audacity and transnational constitutionalism (as I argued elsewhere), but the BGH opted for conservatism and conformism. I deeply regret it.

Though it is always perilous to comment on a case based only on a preliminary press release, I will offer here some (critical and preliminary) thoughts on the main aspects of the BGH’s legal reasoning.

I.               This is not forced arbitration (or is it?)

Paradoxically (or not), I chose to start with the end of the BGH’s press release discussing the validity of the arbitration agreement. The BGH is also very much drawn to paradoxes in this final paragraph of its press release. In a first sentence it states rather bluntly that Pechstein has freely signed the arbitration agreement in favour of the CAS.[1] Yet, conscious of the absurdity of such a claim (unless one means only that Pechstein was free to decide to become a professional speed-skater), it immediately qualifies its assertion by claiming that in any case the fact that she was forced to sign the agreement does not imply that it is invalid.[2] This is justified on the basis of a balancing exercise (which is not detailed in the press release and will be important to scrutinize in the final judgment) between the athlete’s fundamental right to a judge and her freedom to provide services and the constitutionally protected autonomy of associations (e.g. ISU).[3] This is particularly so, because Claudia Pechstein could appeal a CAS award to the Swiss Federal Tribunal (SFT).[4] Thus, she had access to a national judge and did not necessitate recourse to the German courts.[5]

Hidden in this relatively small paragraph, compared to the overall press release, are many controversial statements and assumptions. First, the claim that Claudia Pechstein (and any other international athlete for that matter) freely submits to CAS arbitration is surreal. So unconvincing, that the BGH itself debunks it in the following phrase. What is it then? Free consent or forced consent? You need to choose! In fact, CAS arbitration is always (in appeal cases) forced arbitration. This should be openly acknowledged by the BGH and the SFT. Instead, they are forced into logical convolutions that can only be perceived, in the SFT’s own words, as “illogical”.[6] Second, the balancing exercise conducted by the BGH should be scrutinized. Unfortunately, there is very little information on this balancing in the press release. Yet, one should not accept a restriction on the freedom of an athlete to provide services and on its fundamental right to access national courts, unless a forced CAS arbitration is shown as absolutely necessary to secure the autonomy of the Sports Governing Bodies (SGBs). Moreover, such a weighty restriction on the fundamental rights of an athlete should imply a strict assessment of the quality of the judicial process at the CAS. In light of the BGH’s assessment of the independence of the CAS (see more on this in part II.), one can doubt that it has taken this balancing exercise seriously. Finally, the claim that access to the SFT could compensate for the loss of Claudia Pechstein’s access to German Courts is ludicrous, or in good German realitätsfremd. Any CAS practitioner knows that the SFT favours (to its credit openly) a “benevolent”[7] approach to the CAS, and that it is extremely reluctant to overturn awards on the basis of procedural or substantial ordre public.[8] Winning an appeal against a CAS award in front of the SFT is a bit like Leicester City winning the Premier League, an oddity.

Based on the BGH’s press release, the ruling seems at best vague and unpersuasive and at worse negligent in its assessment of the factual and legal situation. One can well argue that on balance of interests, forced CAS arbitration might be necessary to preserve the existence of international SGBs and their competitions, but this would imply a way stricter assessment of the institutional independence of the CAS, which is entirely lacking in the press release. 

II.             The (in)dependence of the CAS

The core of the press release concerns the independence of the CAS. The BGH considers that the CAS is a true arbitral tribunal in the sense of German civil procedural law and that it is not structurally imbalanced in favour of the SGBs.[9] Therefore, forcing athletes to arbitrate disputes at the CAS does not constitute an abuse of dominant position. 

I contend that the BGH’s assessment of the independence of the CAS is, based on this press release, imprecise and in some regards even erroneous. It relies on four main arguments:

• SGBs and athletes share the same interest in the fight against doping
• SGBs and athletes share the same interest in having a uniform and swift sporting justice
• The CAS Code allows for sufficient safeguards in case an arbitrator is not sufficient independent/impartial
• The athlete can appeal to the SFT to challenge the lack of independence of an arbitrator

In the following sections of this blog, I will aim at critically unpacking and deconstructing these four arguments one by one.

A.    The shared interest of athletes and SGBs in the fight against doping

In a first paragraph, the BGH sets out to rebut the OLG’s argument that the CAS is structurally imbalanced in favour of the SGBs, i.e. due to the selection process of CAS arbitrators included in the CAS list. In the past, and still nowadays, it is the ICAS, a body constituted of 20 members nominated overwhelmingly by the SGBs, which decides who gets to be on the CAS list. Currently, based on their official CVs available on the CAS’ website, 13 out of 20 ICAS members have direct links with SGBs. Hence, the OLG’s reasonable assumption that the selection process of arbitrators could lead to the perception that the CAS was in a way captured by the SGBs and prone to favour their interests.

The BGH’s trick to rebut this finding of the OLG is to merge the interests of the athletes and of the SGBs into a shared objective of fighting against doping.[10] This is, bluntly speaking, ludicrous. It would be like arguing that the independence of the criminal justice is redundant, because both the State and the accused citizen share an interest in public safety and security. This is legal nonsense and is not up to the standards of the BGH. It is easy to discern that beyond an undoubtedly shared concern for the fight against doping, the athlete and the SGB involved in a particular dispute over a failed anti-doping test have radically opposite interests. Consequently, the independence of the CAS is crucial to ensure that the SGBs do not abuse their legitimate regulatory and executive powers in an anti-doping dispute. 

B.    The shared interest in a uniform and swift sporting justice

The BGH, thereafter, argues that the CAS would be necessary to ensure the uniformity and swiftness of sporting justice and that this would be also in the interest of the athletes.[11] I actually share the view of the BGH on this need for a uniform sporting justice embodied by the CAS. Still, the German judges fail to comprehend that this argument can be used only to justify the post-consensual foundations of the CAS, but is toothless to promote laxer standards of independence for the CAS. The need for uniformity and swiftness might call for a single institution having mandatory jurisdiction, but not for this same institution to be captured by the SGBs or to fail to ensure due process guarantees. Here, ironically, the BGH is laying the ground for a strict review: the recognized necessity of forced arbitration calls for an impeccable CAS on the due process side.

C.    The CAS Code safeguards the independence/impartiality of CAS arbitrators

In the following sections of its reasoning, the BGH argues that any remaining imbalance of the CAS in favour of the SGBs could be remedied via the procedural safety mechanisms included in the CAS code.[12] In the full judgment it probably refers to article S.18 CAS Code providing that arbitrators have to sign “an official declaration undertaking to exercise their functions personally with total objectivity, independence and impartiality, and in conformity with the provisions of this Code” and to article R.33 CAS Code stating that “[e]very arbitrator shall be and remain impartial and independent of the parties and shall immediately disclose any circumstances which may affect her/his independence with respect to any of the parties.” Based on article R.34 CAS Code, any challenge of an arbitrator on the basis of the latter provision must be submitted to the ICAS Board composed of six members, five of which are or have been in the past involved in executive positions in SGBs. In these conditions, it should be obvious that challenging the independence of an arbitrator vis-à-vis the SGBs is extremely unattractive for an athlete, even more so when considering that in case of failure there is a risk of alienating the arbitrator in question. This is why the CAS’s independence issue is systemic and cannot be solved without re-designing the selection process and composition of the ICAS.

Furthermore, the BGH also argues that both parties can chose an arbitrator and that both arbitrators will then designate the President of the panel.[13] This is plainly wrong. In appeal cases, concerning almost all the anti-doping cases and which was the procedure followed in the Pechstein case, it is the President of the appeal division that designates the President of the panel.[14] The president of the division is also the one in charge of ensuring “that the arbitrators comply with the requirements of Article R33”. [15]  This person is directly nominated by ICAS and it suffices to remind that the previous holder of this position was (until 2013) Thomas Bach (now IOC President, then IOC Executive Board member), to demonstrate how doubtful its independence from the SGBs was and still is. It is difficult to understand how such a basic mistake has found its way into a BGH press release. Even the official CAS Code Commentary by the CAS Secretary General openly justifies this exclusive prerogative of the President of the appeal division by stating that she “can better evaluate if it is preferable to appoint an experienced arbitrator in order to act as chairman of the Panel or a less experienced CAS arbitrator, who is not widely known to the parties but who would have the necessary background to rule on a particular case”.[16] The dilettante manner in which the BGH has conducted its assessment of the CAS’ independence contrasts strongly with the OLG’s thorough discussion of the problematic role of the ICAS and of the president of the appeal division.[17]  

D.    The SFT’s control of the independence/impartiality of CAS arbitrators

Finally, and this is a point already touched upon in the first part of this blog, the BGH insists that the losing party has the possibility to appeal to the SFT, which can annul the award.[18] The problem is, again, that the SFT is a mere paper tiger. Yes, it intervened (mildly) in the famous Gundel case in 1993, because back then the IOC was directly and openly controlling the CAS, but since then it has adopted a very narrow interpretation of the scope for challenges of the independence of CAS arbitrators.[19] Generally, the SFT considers the CAS as a necessary evil that should be (very) benevolently checked. This is hardly a credible avenue to ensure that its decisions abide by the democratic standards called for on the basis of its mandatory global jurisdictions.[20]

Conclusion: A missed opportunity

In work of arts, I am, and remain, a fond admirer of Magritte’s surrealist take on life. Yet, I doubt that a Court should engage in a similar exercise when drafting its judgments. Its role is to get its facts right (or close to right) and find the fitting interpretation of the law in a particular context. In the present case, I believe the BGH failed on both fronts. In its press release it misrepresented basic facts (that can be checked in two clicks via google) on the functioning and institutional structure of the CAS, often concerning facts that were already available in the OLG’s judgment. This is extremely worrying for such a reputable Court. Additionally, it failed to properly understand its constitutional role vis-à-vis the CAS and the need to ensure that basic due process rights of athletes are respected at the CAS. This needed not entail the death of the CAS, nor the end of its mandatory jurisdiction, nor even that Pechstein should be allowed to have her liability claim heard (a flood of appeals could have been easily avoided). Instead, a reform of the CAS could have been simply achieved by a subtle Solange formula stating roughly that forced CAS arbitration is fine ‘as long as’ the independence of the CAS is safeguarded and the due process rights of athletes warranted. Hopefully, the case will move to the Bundesverfassungsgericht (and it is still pending before the European Court of Human Rights), which knows a thing or two about Solange formulas…

[1] “Die Klägerin hat die Schiedsvereinbarung freiwillig unterzeichnet.”

[2] “Dass sie dabei fremdbestimmt gehandelt hat, da sie andernfalls nicht hätte antreten können, führt nicht zur Unwirksamkeit der Vereinbarung.”

[3] “Denn auch insoweit ergibt die Abwägung der beiderseitigen Interessen am Maßstab des § 19 GWB eine sachliche Rechtfertigung der Verwendung der Schiedsklausel, die nicht gegen gesetzliche Wertentscheidungen verstößt. Dem Justizgewährungsanspruch der Klägerin sowie ihrem Recht auf freie Berufsausübung steht die Verbandsautonomie der Beklagten gegenüber.”

[4] “Schließlich ist der Klägerin im Anschluss an das Schiedsgerichtsverfahren Zugang zu den nach internationalem Recht zuständigen schweizerischen Gerichten möglich.”

[5] “Ein Anspruch gerade auf Zugang zu den deutschen Gerichten besteht danach nicht.”

[6] “Qu'il y ait un certain illogisme, en théorie, à traiter de manière différente la convention d'arbitrage et la renonciation conventionnelle au recours, sous les rapports de la forme et du consentement, est sans doute vrai.” BGE 133 III 235, at 245.

[7] “Exprimée d'une autre façon, cette logique veut que le maintien d'une possibilité de recours constitue un contrepoids à la "bienveillance" avec laquelle il convient d'examiner le caractère consensuel du recours à l'arbitrage en matière sportive.”

[8] See on this difficulty A. Rigozzi, Challenging Awards of the Court of Arbitration for Sport, J Int. Disp. Settlement (2010) 1 (1): 217-265.

[9] “Der CAS ist ein "echtes" Schiedsgericht im Sinne der §§ 1025 ff. ZPO.”

[10] “Denn die Verbände und die Athleten stehen sich nicht als von grundsätzlich gegensätzlichen Interessen geleitete Lager gegenüber. Vielmehr entspricht die weltweite Bekämpfung des Dopings sowohl den Interessen der Verbände als auch denen der Athleten.”

[11]“Die mit einer einheitlichen internationalen Sportsgerichtsbarkeit verbundenen Vorteile, wie etwa einheitliche Maßstäbe und die Schnelligkeit der Entscheidung, gelten nicht nur für die Verbände, sondern auch für die Sportler.”

[12] “Ein dennoch verbleibendes Übergewicht der Verbände wird ausgeglichen durch die Verfahrensordnung des CAS, die eine hinreichende individuelle Unabhängigkeit und Neutralität der Schiedsrichter gewährleistet.”

[13] “Der konkret an dem Verfahren vor dem CAS beteiligte Sportverband - hier die ISU - und der Athlet müssen je einen Schiedsrichter aus der mehr als 200 Personen umfassenden Liste auswählen. Diese Schiedsrichter bestimmen gemeinsam den Obmann des Schiedsgerichts. Ist ein Schiedsrichter befangen, kann er abgelehnt werden.”

[14] Article R54 CAS Code: “If three arbitrators are to be appointed, the President of the Division shall appoint the President of the Panel following nomination of the arbitrator by the Respondent and after having consulted the arbitrators.”

[15] Article R54 CAS Code.

[16] See footnote 2 in M. Reeb & D. Mavromati, The Code of the Court of Arbitration for Sport. Commentary, cases and materials. Kluwer, 2015, p.479.

[17] See generally A. Duval & B. van Rompuy, The Compatibility of Forced CAS Arbitration with EU Competition Law: Pechstein Reloaded. Available at SSRN: http://ssrn.com/abstract=2621983.

[18] Die unterliegende Partei hat die Möglichkeit, bei dem zuständigen schweizerischen Bundesgericht um staatlichen Rechtsschutz nachzusuchen. Das schweizerische Bundesgericht kann den Schiedsspruch des CAS in bestimmtem Umfang überprüfen und gegebenenfalls aufheben.

[19] See L. Beffa, 'Challenge of international arbitration awards in Switzerland for lack of independence and/or impartiality of an arbitrator – Is it time to change the approach?' (2011) 29 ASA Bulletin, Issue 3, pp. 598–606

[20] Here I implicitly refer to the pathbreaking democratic theory for international courts developped in A. Von Bogdandy & I. Venzke, In Whose Name? A Public Law Theory of International Adjudication, Oxford University Press, 2014.

Ever since UEFA started imposing disciplinary measures to football clubs for not complying with Financial Fair Play’s break-even requirement in 2014, it remained a mystery how UEFA’s disciplinary bodies were enforcing the Club Licensing and Financial Fair Play (“FFP”) regulations, what measures it was imposing, and what the justifications were for the imposition of these measures. For over a year, the general public could only take note of the 23 settlement agreements between Europe’s footballing body and the clubs. The evidential obstacle for a proper analysis was that the actual settlements remained confidential, as was stressed in several of our previous Blogs.[1] The information provided by the press releases lacked the necessary information to answer the abovementioned questions.

On 24 April 2015, the UEFA Club Financial Control Body lifted part of the veil by referring FC Dynamo Moscow to the Adjudicatory Body. Finally, the Adjudicatory Body had the opportunity to decide on a “FFP case. The anxiously-awaited Decision was reached by the Adjudicatory Chamber on 19 June and published not long after. Now that the Decision has been made public, a new stage of the debate regarding UEFA’s FFP policy can start.

This blog will firstly outline the facts of the FC Dynamo case and describe how and to what extent FC Dynamo breached the FFP rules. Secondly, the argumentation and the disciplinary measures imposed by the Adjudicatory Chamber will be scrutinized and compared to the measures imposed on other football clubs who, unlike FC Dynamo, were capable of reaching a settlement with UEFA.

The build-up to the Decision

After the CFCB Investigatory Chamber met to assess FC Dynamo’s monitoring documentation in August 2014, it quickly became apparent that FC Dynamo had a break-even deficit. The deficit amounted to €13,231,000 for 2012 and €23,593,000 for 2013, giving an aggregate total of €36,824,000.[2] What was more important for the assessment, however, was the close relationship the Russian football club had (and still has) with JSC VTB Bank (“VTB”). VTB is both the main shareholder in FC Dynamo (holding 74% of the shares in the club) and the club’s principal sponsor.[3] In accordance with Article 58(1) of the FFP regulations, the relevant income under the regulations includes the revenue derived from sponsorship and advertising. Furthermore, as is stipulated in paragraph 4 of that same Article, relevant income from related parties (such as sponsors) must be adjusted to reflect the fair value of any such transactions. Thus, the CFCB Chief Investigator requested a copy of the sponsorship agreement between FC Dynamo and VTB in order to assess whether it was in conformity with the “fair value” requirement.[4] The documentation that FC Dynamo provided was based on a separate valuation report by the firm ‘Repucom’.

The results of the calculations made by the Investigatory Chamber are staggering. Where the break-even deficit without taking into account the sponsorship agreement amounted to €36,824,000 for 2012 and 2013, the final number, after “fair value” adjustment of the sponsorship agreement, amounts to a whopping €192,557,000. These results are shown in the following table, which is taken from the Decision.

Table 1[5]

Given that the investigations of the Investigatory Chamber were taking place towards the end of the monitoring period 2014, the Chamber asked the Russian football federation to send updated monitoring information covering the year 2014.[6] In order to calculate the updated break-even result, it included a second valuation report done by PWC, in addition to the Repucom report. The final break-even result for the monitoring years 2012-2014 is €302,268,000, as can be seen in the second table below.

Table 2[7]

In accordance with Article 61 (2) of the FFP Regulations, the acceptable deviation from the break-even requirement is €45,000,000 for the monitoring period assessed in the seasons 2013/14 and 2014/15. Therefore, in order to determine the aggregate total of FC Dynamo’s break-even deficit is €302,268,000 - €45,000,000 = €257,268,000 (see table 3).

Table 3[8]

An aggregate break-even deficit of €257,268,000 is incredibly high. Especially if one takes into account that the break-even deficit for the years 2012 and 2013 without the sponsorship agreement amounted to “only” €36,824,000. Even though both the fair value of the VTB sponsorship agreement declared by FC Dynamo and the fair value adjustment according to the Investigatory Chamber have been censored[9] in the Decision, one can safely assume that the adjusted value of the sponsorship agreement was roughly €200,000,000 less than what FC Dynamo was receiving from VTB over a period of three years.

In March 2015, the Chief Investigator informed FC Dynamo that UEFA would withold the revenue obtained by the club in European competition.[10] Not long after this decision, on 27 March a meeting was held between the Investigatory Chamber and FC Dynamo. Though the details of the meeting remain unknown, evidently no settlement between the club and the Investigatory Chamber was reached, thereby making FC Dynamo the first club failing to do so. As a consequence of the parties’ failure of reaching a settlement agreement, the Chief Investigator referred the case to the Adjudicatory Chamber. Moreover, in addition to the referal of the case in accordance with Article 14(1) of the Procedural Rules governing the UEFA Financial Control Body to the Adjudicatory Chamber, the Chief Investigator suggested that FC Dynamo were to be excluded from at least one UEFA club competition for which FC Dynamo would qualify in the future, and advocated a fine of at least €1,000,000.[11]

Pursuant to Articles 20(1) and 23(1) of the Procedural rules, the Adjudicatory Chamber asked FC Dynamo to submit its observations and convened an oral hearing with the club on 16 June 2015.[12] Having received all the information it required, the Adjudicatory Chamber proceeded to formulate its final Decision in accordance with Article 27 of the Procedural Rules.[13]

The Adjudicatory Chamber’s Decision

The Adjudicatory Chamber agreed with the Investigatory Chamber that the key issue in the FC Dynamo case is the valuation of the sponsorship agreement with VTB. The Chamber accepted that this value had to be adjusted to a fair value and that the Expert Reports (Repucom and PWC) were an appropriate basis to do so.[14] Mostly, the Chamber based its final decision on the Investigatory Chamber’s findings. In the end, it concluded that, “no matter which Expert Report valuations are used, the Club has failed to fulfil the break-even requirement because it had an aggregate break-even deficit within the range set out in Paragraph 58” of the FFP Regulations.[15]

FC Dynamo was granted the opportunity to explain and justify why it had failed to meet the break-even requirement. The club’s arguments can be summarized as follows:

1.            The Russian television market generates less revenues than the television market in other European States, thereby creating an economic disadvantage for the Russian clubs.[16]

2.            The Russian league imposes restrictions on foreign players.[17]

3.            The Russian clubs have suffered economically from the fluctuating exchange rates.[18]

The Adjudicatory Chamber counter argued as follows:

1.            Other European States also generate less revenue from television. However, their clubs comply with FFP rules.[19]

2.            A vast majority of European leagues are subject to limitations regarding the use of foreign players. Russia is not “special” in that regard.[20]

3.            Changes in exchange rates may have had an adverse impact on FC Dynamo’s liability under a loan denominated in Euros. However, this did not result in an adverse impact on the Club’s break-even result. Furthermore, it must be remembered that the impact of such fluctuations can be reasonably considered negligible in the context of FC Dynamo’s overwhelming failure to comply with the break-even Requirement.[21]

FC Dynamo’s financial projections and the Compliance Plan

In the observations submitted by FC Dynamo to the Adjudicatory Chamber, the club also presented plans that will allow it to fulfil the break-even requirement in the future. First of all, FC Dynamo’s plans for a new stadium will allow it to generate more revenue.[22] Secondly, the club indicated that it was seeking new investment in the club by means of selling shares and that it will enjoy increased revenues from new sponsorship and retail opportunities. [23] In addition to the financial projections, FC Dynamo also held that it had introduced new internal guidelines to govern its transfer activities (including a salary cap) and has suggested that an emphasis will be placed on more youth players being promoted to the first team.[24]

Again the Chamber was not convinced. FC Dynamo’s proposals were deemed “vague in substance and its projections appear overly optimistic. Whilst the Club’s good faith throughout the proceedings and acknowledgement that it must adjust its business model is welcomed, its proposed route to compliance with the Break-even Requirement is far from certain.”[25] As regards the stadium, since it will not be owned by FC Dynamo itself[26], the Chamber argued that it remains unclear whether it will generate more revenue. And even if it does, this will not happen before 2018. It also remains uncertain whether FC Dynamo will attract new investment. The Chamber is aware of VTB’s plans to sell its shares, but is uncertain if any sale can be effected in the near future. The potential buyer of these shares, Dynamo Sports Society, and VTB have only signed a non-committal intention clause regarding the transfer.[27] Further, the Chamber deems it unlikely that FC Dynamo will comply with the break-even requirement through increased sponsorship revenue. As FC Dynamo itself pointed out in its observations, “unfavourable economic conditions” may make it difficult to attract new investment.[28] More importantly, “having regard to the scale of the Club’s failure to fulfil the Break-even Requirement, even a strong increase in revenues from commercial activities and player sales would be unlikely to bring about FC Dynamo’s sustained and consistent compliance with the Break-even Requirement, for so long as the related party issues surrounding VTB’s involvement with the Club persist”.[29] Lastly, the Chamber welcomes the club’s ambition to reform its transfer activities and place more emphasis on youth players, but similarly held that there is no guarantee that FC Dynamo will actually comply with such policies.[30]

Disciplinary Measures

According to the Chamber, FC Dynamo failed to justify the break-even deficit convincingly and, consequently, faced disciplinary measures. By form of reminder, the Chamber stressed that the objectives of the FFP Regulations included the encouragement of clubs to operate on the basis of their own revenues and, thus, the protection of the long-term viability and sustainability of European football. Furthermore, the principle that all clubs competing in UEFA’s club competitions must be treated equally underpins the Regulations. Since not meeting the break-even requirement may directly affect the competitive position of a club, to the detriment of clubs who comply with the FFP Regulations, this principle has even greater force.[31]

The main, and extreme, disciplinary measure imposed by the Chamber upon FC Dynamo, consists of an exclusion from the next UEFA club competition for which the club would otherwise qualify in the next four seasons (i.e. the 2015/16, 2016/17, 2017/18 and 2018/19 seasons).  Given the scale of the club’s failure to comply with the break-even requirement, the measure is regarded by the Chamber as the “only appropriate measure to deal with the circumstances of this case”.[32] As for FC Dynamo, under Article 34(2) of the Procedural Rules, it had 10 days to appeal the Decision in writing in front of the CAS.  

Concluding remarks

First and foremost, the exclusion from European competitions as a disciplinary measure has, so far, only been imposed on FC Dynamo. None of the club with whom the Investigatory Chamber had reached settlement agreements have been excluded from European competitions for breaching the break-even requirement.[33] The Adjudicatory Chamber had stated numerous times in its Decision that the key factor in the FC Dynamo’s case was the scale of the club’s failure to comply with the break-even requirement. From an objective point of view, a break-even deficit of €257,268,000 is very high indeed. In the view of the Chamber, it justified such a far going disciplinary measure. The question remains, however, what the break-even deficit was for those clubs who managed to reach settlement agreements. Was the break-even deficit for clubs like Manchester City and PSG lower or higher than 257 million? If it was equal or higher than this amount, how did these clubs manage to settle where FC Dynamo failed? Would the measures imposed on FC Dynamo be considered proportionate if other clubs had the same or higher break-even deficit?

On a different note, the FC Dynamo case does allow us to understand better the rationale behind the Adjudicatory Chamber’s decision to impose certain disciplinary measures. It is interesting to see how much weight it places on sponsorship agreements that, according to the Chamber, do not represent a fair market value. This is not only useful information for football clubs, but also to third parties who might be interested in sponsoring a football club. On a downside, we will probably never know exactly what the value of the sponsorship agreement was according to the club, and how it was adjusted by the two Chambers. Even though FC Dynamo had the right to keep certain information confidential, knowing the two figures would have helped us to better understand the reasoning used by the Chambers in reaching their decisions and choosing to exclude FC Dynamo from UEFA competitions.

Finally, these are still crucial times as regards the functioning and the legality of UEFA’s FFP rules. The rules are being challenged in front of both the French and Belgium courts as we speak and there is always the possibility (though remote, see our blog) of the European Courts having to judge on the matter. A challenge in front of the CAS could be seen as a welcome contribution to test the legality, the functioning and the proportionality of the rules. Though it is currently unknown whether FC Dynamo has made use of the opportunity to appeal the case to the CAS.

[1] See e.g.: Luis Torres, “Financial Fair Play: Lessons from the 2014 and 2015 settlement practice of UEFA” (8 June 2015); and Oskar van Maren, “The Nine FFP Settlement Agreements: UEFA did not go the full nine yards” (19 May 2014).

[2] Decision in Case AC-02/2015 CJSC Football Club Dynamo Moscow of 19 June 2015, para. 5.

[3] Ibid, para. 56.

[4] Ibid, paras. 7-10.

[5] Ibid, para. 11.

[6] Ibid, para. 8.

[7] Ibid, para. 15.

[8] Ibid, para. 24.

[9] Under Article 33(3) of the Procedural Rules Governing the UEFA Financial Control Body, “the adjudicatory chamber may, following a reasoned request from the defendant made within two days from the date of communication of the decision, redact the decision to protect confidential information or personal data”.

[10] Decision in Case AC-02/2015, para. 17.

[11] Ibid, para. 25.

[12] Ibid, paras. 28-31.

[13] Under Article 27 of the Procedural Rules, the adjudicatory chamber may take the following final decisions:

a) to dismiss the case; or

b) to accept or reject the club’s admission to the UEFA club competition in question; or

c) to impose disciplinary measures in accordance with the present rules; or

d) to uphold, reject, or modify a decision of the CFCB chief investigator.

[14] Decision in Case AC-02/2015, para. 56.

[15] Ibid, para. 60.

[16] Ibid, para. 67.

[17] Ibid, para. 70.

[18] Ibid, para. 72.

[19] Ibid, paras. 68 and 69.

[20] Ibid, para. 71.

[21] Ibid, paras. 73-75.

[22] Ibid, para. 84.

[23] Ibid, paras. 89 and 94

[24] Ibid, para. 97.

[25] Ibid, para. 83.

[26] According to para. 85, the stadium will be owned and operated by a separate legal entity named ‘Assets Management Company Dynamo’.

[27] Ibid, paras. 89-90

[28] Ibid, para. 91.

[29] Ibid, para. 96.

[30] Ibid, para. 97.

[31] Ibid, paras. 77-80

[32] Ibid, paras. 101-102

[33] For more information on the settlements agreements, see our blog from 9 June 2015.