Asser International Sports Law Blog

Our International Sports Law Diary
The Asser International Sports Law Centre is part of the T.M.C. Asser Instituut

The Specificity of Sport - Comparing the Case-Law of the European Court of Justice and of the Court of Arbitration for Sport - Part 1 - By Stefano Bastianon

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.*

 

1. Introduction.

The so-called specificity of sport represents one of the most debated, if not the most debated, but still undefined issue under European Union (EU) law. A noteworthy peculiarity is that the specificity of sport is frequently mentioned in several legislative and political documents issued by EU institutions, however it is not expressly referred to in any judgment by the European Court of Justice (ECJ).Conversely, the Court of Arbitration for Sport (CAS) case-law on Art. 17 of FIFA Regulations on status and transfer of players (RSTP) has repeatedly and expressly referred to the specificity of sport.[1] Apparently, the concept of specificity of sport has different meanings and purposes in the ECJ and CAS jurisprudence. In this blog (divided in two parts), I will try to analyse those two different meanings and to what extent the CAS case-law is consistent with the concept of specificity of sport as elaborated under EU law.

 

2. The specificity of sport under EU law.

The concept of the specificity of sport is mentioned in several documents issued by the EU institutions. In the Helsinki Report on Sport (1999), it is affirmed that ‘the application of the Treaty's competition rules to the sporting sector must take account of the specific characteristics of sport, especially the interdependence between sporting activity and the economic activity that it generates, the principle of equal opportunities and the uncertainty of the result’. According to the Declaration of Nice, (2000) ‘even though not having any direct powers in this area, the Community must, in its action under the various Treaty provisions, take account of the social, educational and cultural functions inherent in sport and making it special, in order that the code of ethics and the solidarity essential to the preservation of its social role may be respected and nurtured’.

However, neither the Nice Declaration nor the Helsinki Report contains a clear definition of the specificity of sport: the Helsinki Report simply lists some specific characteristics of sports activities that are particularly important in the field of antitrust law, whereas the Nice Declaration identifies the specificity of sport with the social, educational and cultural functions inherent in sport. The same applies to the White Paper on Sport (2007), where it is stated that ‘sport has certain specific characteristics, which are often referred to as the “specificity of sport”’. According to the White Paper, the specificity of sport can be approached through two prisms: ‘the specificity of sporting activities and of sporting rules, such as separate competitions for men and women, limitations on the number of participants in competitions, or the need to ensure uncertainty concerning outcomes and to preserve a competitive balance between clubs taking part in the same competitions; the specificity of the sport structure, including the autonomy and diversity of sport organisations, a pyramid structure of competitions from grassroots to elite level and organised solidarity mechanisms between the different levels and operators, the organisation of sport on a national basis, and the principle of a single federation per sport’.

Axiomatically, the White Paper tried to draw a distinction between the specificity of sporting rules  and the specificity of sporting structure The Commission’s effort is certainly commendable, except for two aspects:

a) on the one hand, the Commission does not offer a clear definition of the specificity of sport and instead has just highlighted some features of the specificity of sport in the EU context;

b) on the other hand, some of these features are rather questionable and deserve to be discussed in more detail. For example, separate competitions for men and women. What is the EU legal basis for not allowing Serena Williams to play the final of Wimbledon against Novak Djokovic? Similarly, as regards the competitive balance argument, we can all agree that it is good, but no one can truly define a ‘balanced’ competition. So, if we do not know how much competitive balance is needed, how can we say that it is always good?

More recently, Art. 165 TFEU states that ‘the Union shall contribute to the promotion of European sporting issues, while taking account of the specific nature of sport’. Again, the specificity of sport is only mentioned, but not defined. Lastly, the report Mapping the specificity of sport by the European Commission – Directorate-General for Education and Culture (2016) says that ‘the specificity of sport refers to the inherent characteristics of sport which set it apart from other economic and social activities’.

It follows from the foregoing that under EU sports policy, all the institutions agree on the fact that sport is special, in the sense that it is different from any other activity because of its social and educational dimension. That said, if one tries to translate this concept into a definition to be applied in concrete cases it is impossible to find a common benchmark.

 

3. The specificity of sport in the case law of the ECJ

In terms of EU case-law, the situation is even more difficult, given the ECJ has never defined the notion of specificity of sport. Rather, the Court of Justice has always indirectly dealt with the specificity of sport in terms of a general rule and its (even more general and not defined) exceptions. Since the Walrave ruling, the ECJ has always stated that ‘the practice of sport is subject to Community [now European] law only in so far as it constitutes an economic activity’ (the rule); however at the same time is has also stated that the prohibition of any discrimination based on nationality ‘does not affect the composition of sport teams, in particular national teams, the formation of which is a question of purely sporting interest and as such has nothing to do with economic activity’ (the exception). The Walrave judgment (and subsequent ECJ case-law) shows that from the very beginning the common idea had been that sporting rules relating to purely sporting issues were as such, not subject to EU law and were known as purely sporting rules.

From a legal point of view, the notion of purely sporting rules is unclear. Through case law however, the ECJ managed to translate the concept of purely sporting rules into a workable tool to distinguish which rules are subject to EU law and which were not. In this context, it was possible to say that the purely sporting rules and the specificity of sport were two sides of the same coin. In other words, sport was not special because it was subject to EU law, but at the same time, it was special because some sporting rules were outside the scope of the Treaty.

This situation totally changed after the Meca Medina judgment by the ECJ. In order to contextualise the relevance of the Meca Medina case, it is worth recalling that the case was about the allegedly anticompetitive nature of the antidoping rules of the International Olympic Committee (IOC).

During the first round before the General Court, the judges stated that purely sporting rules may have nothing to do with economic activity, such that they do not fall within the scope of provisions on the free movement of people. Consequently, they have nothing to do with the economic relationships of competition, with the result that they also do not fall within the scope of Arts. 81 and 82 EC [now Arts. 101 and 102 TFEU]. Since the prohibition of doping is based on purely sporting considerations, it follows that it has nothing to do with any economic considerations. Thus, antidoping rules cannot come within the scope of the Treaty provisions on the economic freedoms and, in particular, of provisions on the free movement of people and competition.

Though according to the ECJ, the reasoning of the General Court amounted to a mistake in law. In its judgement, the ECJ underlined that ‘the mere fact that a rule is purely sporting in nature does not have the effect of removing from the scope of the Treaty the person engaging in the activity governed by that rule or the body which has laid it down. If the sporting activity in question falls within the scope of the Treaty, the conditions for engaging in it are then subject to all the obligations which result from the various provisions of the Treaty. It follows that the rules which govern that activity must satisfy the requirements of those provisions, which, in particular, seek to ensure freedom of movement for workers, freedom of establishment, freedom to provide services, or competition. Therefore, even if those rules do not constitute restrictions on freedom of movement because they concern questions of purely sporting interest and, as such, have nothing to do with economic activity, that fact means neither that the sporting activity in question necessarily falls outside the scope of Articles 81 EC and 82 EC nor that the rules do not satisfy the specific requirements of those articles. In such a context, 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 and are proportionate to them’.

Though not explicitly stated in the ruling, the traditional approach based on the distinction between purely sporting rules and economic rules was openly denied by the ECJ and the notion of purely sporting rules expelled from EU law. Moreover, the new solution adopted by the ECJ does not simply amount to a terminological change; Consequently, any sporting rule is now subject to EU law per the Meca Medina judgment. Further, in cases where a sporting rule is challenged based on competition law, we must apply the Wouters test to assess the compatibility of the rule with EU law.Then in cases where a sporting rule is challenged on the basis of free movement principles, we must apply the Gebhard test to assess the compatibility of the rule with EU law. Although slightly different, these two tests require assessing the overall context of the rule, the objectives of the rule, if and to what extent the rule is able to attain each objective, and the proportionality of the rule.

The Meca Medina jurisprudence was later also endorsed by the Commission: in the White Paper on Sport, it stated that ‘in respect of the regulatory aspects of sport, the assessment whether a certain sporting rule is compatible with EU competition law can only be made on a case-by-case basis, as recently confirmed by the European Court of Justice in its Meca-Medina ruling. The Court provided a clarification regarding the impact of EU law on sporting rules. It dismissed the notion of “purely sporting rules” as irrelevant for the question of the applicability of EU competition rules to the sport sector. The Court recognised that the specificity of sport has to be taken into consideration in the sense that restrictive effects on competition that are inherent in the organisation and proper conduct of competitive sport are not in breach of EU competition rules, provided that these effects are proportionate to the legitimate genuine sporting interest pursued. The necessity of a proportionality test implies the need to take into account the individual features of each case. It does not allow for the formulation of general guidelines on the application of competition law to the sport sector.’

The new approach raises two fundamental problems:

a) the Wouters test as well as the Gebhard test apply to all sectors of the economy: they apply to goods as well as to services, to lawyers as well to sportspeople. Consequently, if the specificity of sport is taken into account based on the same rules and the same exceptions provided for any other type of economic activity, it follows that sport is no less special under EU law than one may think. Sport is deemed to be special, but sports matters are governed by the same legal tests applied in other economic sectors.

b) according to the Meca Medina judgment, the Court of Justice has the right to assess the proportionate character of any sporting rule allegedly in contrast with EU law. For example, rules relating to penalties in doping cases, rules of the game and rules relating to nationality requirements to be selected for national teams. Undoubtedly, in such cases the ECJ will state that the objectives of these rules are legitimate.

Unfortunately, the same is not true for whether these rules are proportionate. In other words, the simple idea that the ECJ has the right to assess the proportionality of a rule fixing the number of players on the field of play means that sport is no longer special under EU law.  It is important to  remember that in the Meca Medina case, the ECJ ruled that the anti-doping rules at issue were not disproportionate only because the plaintiffs did not plead that the penalties were excessive. What may have happened if the plaintiffs had contested the proportionality of these penalties? Can one be certain that the ECJ has the competence to  decide whether a two-year penalty for doping is/is not proportionate? Does the specificity of sport really require this?


* Associate Professor of EU law and EU sports law, University of Bergamo (Italy); Attorney-at-law; CAS arbitrator. The views, thoughts, and opinions expressed in the text belong solely to the author.

[1] See M. Colucci, The specificity of sport and the employment relationship of athletes, R. Blanpain, F. Hendrickx (eds.), Labour Law between Change and Tradition: Liber Amicorum Antoine Jacobs, 2011, Kluwer Law International BV, The Netherlands.

 

Comments are closed
Asser International Sports Law Blog | Unpacking Doyen’s TPO Deals – Sporting Lisbon’s rebellion in the Rojo case. By Antoine Duval and Oskar van Maren

Asser International Sports Law Blog

Our International Sports Law Diary
The Asser International Sports Law Centre is part of the T.M.C. Asser Instituut

Unpacking Doyen’s TPO Deals – Sporting Lisbon’s rebellion in the Rojo case. By Antoine Duval and Oskar van Maren

In this blog we continue unpacking Doyen’s TPO deals based on the documents obtained via footballleaks. This time we focus on the battle between Doyen and Sporting over the Rojo case, which raises different legal issues as the FC Twente deals dealt with in our first blog.

 

I.              The context: The free-fall of Sporting

Sporting Lisbon, or Sporting Club de Portugal as the club is officially known, is a Portuguese club active in 44 different sports. Although the club has the legal status of Sociedade Anónima Desportiva, a specific form of public limited company, it also has over 130.000 club members, making it one of the biggest sports clubs in the world.

The professional football branch of Sporting is by far the most important and famous part of the club, and with its 19 league titles in total, it is a proud member of the big three cartel, with FC Porto and Benfica, dominating Portuguese football. Yet, it has not won a league title since 2002.

The members of Sporting get to elect the club’s president. A typical election campaign is akin to a political one with regard to status, media coverage and campaign funds. In fact, former Sporting president Pedro Santana Lopes went on to become the Prime Minister of Portugal in 2004-2005. In 2011, the elections were hotly disputed with Godinho Lopes defeating his main rival Bruno de Carvalho by only 300 votes. A request by De Carvalho to recount the votes was later dismissed, causing local unrests and police intervention.

Under Godinho Lopes’ presidency, Sporting obtained very poor sporting results, including a seventh place in the 2012/13 season, the worst ranking in the club’s history. New elections were held in 2013 and won by Bruno de Carvalho in a landslide. In addition to underwhelming results on the field, it turned out that the financial health of the club off the field was also at risk. Bruno de Carvalho faced a loss of €43 million in the 2012/13 season alone. This large financial debt was one of the reasons why on 1 October 2014, the General Assembly approved the proposal by the new Board of Directors to press liability charges against Godinho Lopes for breaching due diligence duties.

In the midst of the financial and managerial chaos surrounding Sporting, one dispute stands out as being relevant to our series of blogs on Doyen’s TPO deals. Faced with financial difficulties, Godinho Lopes had recourse to Doyen Sport to finance the recruitment of a number of players, amongst them Marco Rojo, an Argentine defender coming from Spartak Moscow in 2012. After two years at the club, the player was transferred against a healthy €20 million fee to Manchester United in 2014. However, the club staunchly refused to pay out the share of the economic rights owned by Doyen. Thus, giving way to a legal dispute on which we will put the spotlight in this blog. Although the case is still pending in front of CAS, several documents related to it were published on the footballleaks website.[1]

 

II.            The facts: the Rojo case

Before analysing the fine prints of the Economic Rights Participation Agreement (ERPA) between Doyen and Sporting concerning the economic rights of Rojo, a bit of background on the player and his career is needed. Marcos Rojo is an Argentine professional football player who appeared on the elite football scene at a young age. In 2009, by the age of 19, he won the Copa Libertadores with his side Estudiantes de la Plata, and in 2011, aged 21, he was a regular starter for the Argentinian national team during the Copa America. Sporting, under Godinho’s presidency, signed Rojo from Spartak Moscow for €5.43 million in July 2012.[2] In order to finance the signing of Rojo, Sporting needed fresh money, thus it turned to Doyen as a “last resort initiative”.[3] As provided by the ERPA, the Maltese investment company paid € 3 million and obtained in return 75% of Rojo’s Economic rights. The agreement includes similar provisions to the ones outlined in detail in our FC Twente blog. Notably, in the case Sporting would receive a transfer offer for Rojo of more than €8 million, Doyen could request that the club accept the offer or pay an amount equivalent to 75% of the offer to buy back the rights of the player from the fund. Moreover, in the case the club was to renew the contract of the player or failed to avoid that his contract runs out, it was bound to pay a minimum fee of €4.2 million (in case of renewal, Doyen could also chose to keep its share of the player’s economic rights).

Rojo’s outstanding 2014 World Cup (he was selected for the World Cup All-Star Team) triggered interest from English Premier League clubs, most notably Southampton and Manchester United. Both sides were keen on signing him in the summer of 2014, but Sporting president De Carvalho had no intention of selling him. According to De Carvalho, Rojo was key to the club’s ambition of becoming Portuguese champion. Sporting claimed that Doyen, via its director Nelio Lucas, was “promoting and forcing this transfer” and, thus, “violating his duty to respect Sporting’s independence in transfer related matters”.[4] De Carvalho maintained that Doyen’s influence breached then art.18bis of the FIFA RSTP. In retaliation against Doyen’s perceived influence, Sporting refused to pay to Doyen the agreed 75% share of the proceeds from the transfer of Rojo to Manchester United. Instead, it argued that Doyen had breached its contractual duties and declared the ERPA (and the guarantees attached to it) null and void. Nonetheless, the club did transfer back to Doyen the €3 million it invested at the outset. Hence, Sporting put Doyen’s contractual edifice to the test and Doyen was forced to go to court (and more precisely to the Court of Arbitration for Sport) to try to enforce its rights under the ERPA agreement.

 

III.         The showdown: The CAS as ultimate arbiter of the legality of Doyen’s TPO contracts

The ERPA signed by Doyen and Sporting contains both a clause defining Swiss law as the law applicable to the contract and the CAS as the jurisdiction competent to deal with disputes arising out of the contract.[5] Henceforth, it was mandatory for Doyen to turn to the CAS as soon as it became obvious that it would not recoup the 75% it believes it was owed on Rojo’s transfer. The dispute was finally heard by a CAS panel in June of this year and the final decision is still, as far as we know, pending (see the outstanding coverage of the issue by Tariq Panja from Bloomberg, here and here). The case is of great importance to Doyen, if the CAS finds that Doyen’s ERPA is contrary to Swiss law, this finding will most likely apply to each of Doyen’s TPO deals that are based on a similar model and dramatically weaken its contractual position. The good news for Doyen is that it probably has only relatively few ERPA’s still in place (for example FC Twente and Doyen agreed to put an end to their agreement), as the FIFA ban should have blocked it from entering into new agreements.

This case is not about former article 18bis of the FIFA RSTP, as is often misunderstood. This would come only into play if FIFA were to sanction Sporting for having had recourse to an ERPA with Doyen, an issue that might still arise and a configuration potentially already at play in the FC Twente case. The Rojo dispute between Sporting and Doyen, however, is of a purely contractual nature. It is only about whether Doyen’s TPO deals are compatible with Swiss civil law. In this regard, footballleaks has recently published a very interesting document: a confidential report by a Swiss law firm on the legality of Doyen’s Model ERPA in light of Swiss law. This report raises a number of thorny legal issues that the CAS will have to weigh on.

The ERPA between Doyen and Sporting must abide by the requirements of Swiss civil law. In general, the Swiss Civil Code is favourable to contractual autonomy, yet there are some restrictions to the freedom of the parties. To be valid, an agreement should not be contrary to the bonos mores. In other words, the moral values or ethical principles supported by the Swiss legal system. Indeed, as foreseen by Art. 20.1 of the Swiss Code of Obligations, a “contract is void if its terms are impossible, unlawful or immoral”.

The whole Rojo case in front of the CAS is likely to hang on the determination whether Doyen’s ERPA model is immoral or not from the Swiss perspective. Immorality is constituted especially if the contract introduces a serious imbalance between the obligations of the parties. The Swiss law firm mandated by Doyen doubted the signature of an ERPA would create such imbalance, simply because “both the FUND [Doyen] and the Club have rights and obligations according to the Agreement”.[6] This falls a bit short. As we have seen, Doyen uses the leverage offered by the financial difficulties of clubs (FC Twente or Sporting) to impose very harsh contractual conditions and high interest rates. This harshness is clearly acknowledged in the ERPA. For example, clause 10.6 indicates that Sporting “is conscious of the harshness and the severity of the consequences of clauses 10.4 and 10.5”. Whether the embedded contractual imbalance in the ERPA is sufficient to be deemed immoral under Swiss law is for the CAS to decide, but it is not a possibility that should be discarded lightly. Moreover, this potential immorality is also supported by the willingness of FIFA to ban TPO as it points at the conflicts of interest and integrity risks arising out of its use.

The ERPA could also be contrary to art. 27.2 of the Swiss Civil Code, which provides that: “No person may surrender his or her freedom or restrict the use of it to a degree which violates the law or public morals”. According to the Swiss law firm contracted by Doyen, this is especially the case if a legal entity’s “economic freedom is restricted in such a way that its economic existence is in danger”.[7] It also argued that, “the undertakings of the Club cannot in principle be considered excessive”, as “there is no obvious disparity between the considerations of the Parties”.[8] Here again, the arguments provided by Doyen’s law firm are feeble at best. In fact, the contractual imbalance is openly acknowledged in Doyen’s own contract. The economic freedom of Sporting (or FC Twente for that matter) is so drastically reduced that a club is forced into selling its best players at Doyen’s will.[9] Those players are at the heart of the “economic existence” of a club. In fact, the fate of FC Twente illustrates how the loss of its best players led to the club facing financial and sporting bankruptcy.

Finally, Sporting is also likely to have argued that Doyen was in breach of its contractual duties. Clause 14 of the ERPA stipulates that Doyen “recognizes that the Club is an independent entity in so far as the Club’s employment and transfer-related matters are concerned and [Doyen] shall not, either though this Agreement or otherwise, seek to exert influence over these matters […]”. The Club claimed in its termination letter of the ERPA that “Doyen has seriously and irremediably violated its obligations of non-influence in Sporting transfer policy […] which constitutes a material breach of the agreement”. Swiss contract law may entail the right for Sporting to refuse to execute its part of the deal in case of breach of contract by Doyen. In that regard, Sporting would have had to factually demonstrate the faulty character of Doyen’s intervention in Rojo’s transfer.

It is certainly not a given that the CAS will consider Doyen’s ERPA contrary to Swiss law or for Doyen to be in breach of its contractual duties, but there are credible legal arguments that point in both directions. Surely, the hubris of the management of Sporting and FC Twente is chiefly responsible for the terrible deals closed with Doyen. Yet, Doyen leveraged their dire financial situations and irrational ambitions to strong-arm them into one-sided agreements that are imposing unfair terms on the clubs. Doyen takes on very little risk: If a player fails to become a star, the fund will recoup its investment plus very reasonable interests (unless the club is bankrupt); if a player breaks through, it will pocket the jackpot. The fund is a true vulture fund geared to the football industry. It buys under-priced assets (economic rights attached to players) in fire sales and hopes for a huge profit.

We will hear soon from the CAS whether it deems this practice legal under Swiss law. In any event, FIFA has decided to ban TPO outright, raising the opposite question of the compatibility of the ban with EU law. This will be the subject of our final blog.

 


[1] The documents used, especially the ERPA applicable to Rojo and the termination letter send out by Sporting, might be blocked or unavailable due to complaints lodged by Doyen. They are on file with the authors.

[2] http://www.transfermarkt.nl/marcos-rojo/profil/spieler/93176.

[3] Rojo ERPA, 23 August 2012, p.2.

[4] Letter of termination of the ERPA, 14 August 2014, para.15. See also paras 17-20.

[5] Rojo ERPA, 23 August 2012, clause 22 and 23.

[6] FRORIEP, ‘Memorandum on certain questions of Swiss law in relation to a draft ERPA’, para.16.

[7] Ibid, para.23.

[8] Ibid, para.25.

[9] Doyen could not ignore the fact that those clubs were in such financial difficulties, that they would be unable to pay on their own the share of a transfer offer above the agreed amount and thus retain their player.

Comments are closed