The bomb under the transfer system has burst. At least, that's how the Court of Justice of the European Union's ruling in the Diarra case was announced in the media. It would be the biggest landslide in football since the Bosman judgment, which meant that footballers could switch to another club on a transfer-free basis after the end of their contracts. Is there indeed a “Bosman 2.0,” or are the consequences not so bad? In this blog, I delve deeper into the statement and the consequences.
Before discussing the content of the judgment and its consequences, it is good to outline the run-up to the judgment. French top footballer Lassana Diarra was under contract with the Russian club Lokomotiv Moscow in 2014, where a conflict with his coach arose. After a suspension, Diarra asked for permission to train at home instead of with the group. There was a discussion about this, after which Lokomotiv subsequently withheld part of his salary. Diarra did not show up again and the club saw this as a unilateral termination of his contract.
FIFA's transfer rules are set out in the Regulations on the Status and Transfer of Players (RSTP). These rules state that a player must pay compensation to the club if it terminates his or her contract without good reason (“just cause”). The amount of this compensation depends, among other things, on national law and “the specificity of sport”, without further elaboration. In principle, the player is responsible for paying this compensation to the old club, but if the player signs with a new club, both become jointly liable. This also happened to Diarra, who wanted to sign with Sporting Charleroi in Belgium after leaving Lokomotiv. As a result, even though Diarra no longer had an employment contract with Lokomotiv, Charleroi actually had to pay a transfer fee (i.e. compensation). In addition, clubs that incite a player to breach a contract may be banned from transferring. Because Diarra had unilaterally terminated his contract, the RSTP automatically assumed that Charleroi had incited him to do so. The Russian Football Association was also able to refuse to issue the necessary transfer certificate for Diarra, appealing to the RSTP.
Because all these measures were hanging over Charleroi's head, she decided to refrain from contracting Diarra. In the end, Sporting Marseille dared and Diarra was able to play again after almost a year and a half. In the meantime, FIFA's internal dispute resolution body, the Dispute Resolution Chamber, had ruled that Diarra owed 10.5 million euros in compensation to Lokomotiv, a decision that was later confirmed by the Court of Arbitration for Sport. Diarra hired lawyer Jean-Louis Dupont, the lawyer who also assisted Bosman, and started proceedings before the Belgian court. On appeal, the Belgian court asked the Court of Justice preliminary questions about the compatibility of certain RSTP provisions with European law.
In the judgment, the Court of Justice assesses whether the transfer rules conflict with two European law principles. First of all, the Court assesses the RSTP against the principle of free movement of workers. This principle means that, except for a justification, it is not allowed to introduce measures that disadvantage EU nationals if they want to work in another Member State. It should be clear that the RSTP provisions disadvantage football players if they want to switch to another club. It is therefore necessary to assess whether these rules are justified, proportionate and necessary to achieve a particular objective. FIFA argued that the rules ensure the stability of selections and thus make fair competitions possible. Although the Court found that a legitimate purpose, it did not find the regulations proportionate: the RSTP did not contain clear rules for calculating the amount of compensation and the presumption of proof that the new club is automatically liable and the old association does not have to issue a transfer certificate does not take into account the circumstances of the case, such as the behavior of the old club.
The second principle that the Court reviews is the prohibition on cartels, which prohibits business associations from taking decisions that restrict or distort European competition. According to the Court, FIFA's rules, which are considered a decision by a business association, restrict competition. The Court finds that the rules include an anti-recruitment clause between football clubs. Because of these rules, the clubs cannot attract a player who is still under contract with another club without the agreement of the other club or without the risk of huge and unpredictable compensation. The Court writes that the principle of compensation in the event of a breach of contract, as regulated in normal contract law, is sufficient to ensure that clubs can bind their players for a long time.
The transfer system is about to collapse now that the Court has planted a bomb under it. The ambiguity about compensation for players and the high risk of joint and several liability and a transfer ban for the clubs made it more beneficial for players to stay with their clubs, while clubs were inclined to buy off risks with a transfer fee. Now that the Court has declared the rules that create these risks to be contrary to EU law, switching without a transfer fee is much easier and the transfer market will change dramatically.
FIFA will have to change its rules. Transfer periods and the ban on players from terminating their contracts in the middle of the season without a justified reason may remain, but compensation must be lower and more predictable. This will also need to include national law, which means that compensation may vary from country to country. The rule that, in the event of a breach of contract, it is automatically presumed that the new club has contributed to this, should also be amended. For joint and several liability and a possible transfer ban, there must be proof that the new club has incited the player to breach contract.
With this ruling in hand, players can now cancel their contracts and make a transfer much easier. Although players will still have to pay compensation, it will be a lot lower and largely fixed in advance. In addition, clubs don't have to take a transfer ban into account if they attract a player who has terminated his contract without good reason.
The player's old club will now have a harder time recovering its damage in the event of a unilateral breach of contract. When a player goes abroad, he takes his money and possessions with him. Collecting a claim then becomes a lot less easy. Where previously clubs were able to report to the new club and often paid it under the pressure of sporting sanctions, this will now be a lot more difficult. The old club will then have to provide proof that the club participated in unilaterally breaking the contract and that proof is almost impossible to obtain.
These changes also affect the positions of players and clubs in transfer negotiations. A player and buying clubs get more power, so selling clubs will probably have to agree to lower transfer fees. Buying clubs can invest the money they save on transfer fees into drawing fees or higher salaries for players. However, this may be disadvantageous for training clubs, which will receive less transfer income. This declining income could ultimately affect the salaries and budgets of youth schools at those clubs. Concluding that all players benefit from this ruling is therefore too short of a curve.
Lower transfer fees could widen the gap between top clubs and smaller clubs. Top clubs receive higher TV income, which they can reinvest. While smaller clubs sometimes rely on transfer fees to invest in youth and salaries. If this redistributive function of the transfer system is removed, the top clubs will be able to keep this money and the smaller clubs will fall further behind. However, there are also voices who expect this effect to be too bad, because the money that is not invested in transfer fees will go into player salaries and signing bonuses in the sequel.
FIFA has opened a dialogue and is calling on stakeholders, such as players' union FIFPro, to make proposals to amend the RSTP. If FIFA wants to maintain its redistributive function of the transfer system, it will have to consult with players' unions and club representatives. European case law has also ruled that collective bargaining provisions are excluded from the effect of the competition rules under certain conditions. This offers opportunities to give players' unions and club representatives and, by extension, supporter associations and football competitions, a voice in FIFA. It could help FIFA prevent a future Bosman of Diarra, now that players' unions and competitions have started another European cause in their fight against overcrowded player calendars. A solution may therefore be found for all clubs and players who are disadvantaged by FIFA's rules and who are already considering demanding major compensation from FIFA. Pending the results of these meetings, FIFA has now suspended all legal proceedings concerning unilaterally terminating a contract with FIFA's internal bodies.
Do you have questions about the judgment, the unilateral termination of contracts or transfers in general? Then contact the sports law specialists at Vissers Legal!
Mr. Martin Bax
lawyer
.svg)
