ECJ decision in the Diarra case: some of FIFA’s players transfer rules are incompatible with EU law
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On 4 October 2024, the European Court of Justice ("ECJ") delivered its judgment in the Diarra case.1 The ECJ finds that some aspects of FIFA's transfer rules regarding financial compensation and imposing additional sporting sanctions on both club and player in case of early contract termination without "just cause" are incompatible with the guarantee of freedom of movement and EU competition law. This decision is another reminder of the primacy of EU law also in the context of rules governing sports.
Background and questions submitted to the ECJ
The case was filed by former professional football player Lassana Diarra, who signed with Russian football club Lokomotiv Moscow in 2013. After one year, Lokomotiv Moscow terminated the contract due to alleged contractual breaches and filed a claim for compensation before FIFA's Dispute Resolution Chamber ("DRC"). The DRC ultimately found Diarra liable to pay compensation in the amount of EUR 10,5 million to Lokomotiv Moscow.
Following the resolution of the contract with Lokomotiv Moscow, Diarra received an offer by Belgian first division club Royal Charleroi. However, the offer was made under the conditions that (i) Diarra could be registered and play in the club's first team in all FIFA, UEFA, and Belgian Football Association organized competitions, and (ii) no compensation was due by Royal Charleroi to Lokomotiv Moscow. As no such guarantees were provided by FIFA and the Belgian Football Association, Diarra missed this opportunity and was ultimately signed by a French club in July 2015.
Diarra brought the matter before the Belgian courts and claimed damages from FIFA and the Belgian Football Association, arguing that certain rules of the 2014 FIFA Regulations on the Status and Transfer of Players ("RSTP") underlying the transfer and registration procedure were contrary to EU law. A number of amendments have since been made to these rules. Seized with the issue, the Belgian Court of Appeal in Mons turned to the ECJ under Article 267 of the Treaty on the Functioning of the European Union ("TFEU") with the question of whether several of the rules contained in the RSTP are compatible with EU law.
The transfer and registration rules at stake
The RSTP contain a section on the "Maintenance of Contractual Stability between Professionals and Clubs", which lay down the conditions for termination of a contract between a club and a player. These rules provide that a contract between a professional and a club may be terminated without compensation or sporting sanctions only:
- Upon expiry of the term of the contract;
- By mutual agreement
- Where there is "just cause".2
Article 16 of the RSTP further states that a contract cannot be unilaterally terminated during a competition period.
In cases of early termination without just cause, Article 17(1) of the RSTP provides that the party in breach is liable to pay compensation. A number of criteria will determine the level of compensation. Moreover, Article 17(2) specifies that if a professional is required to pay compensation, the professional and his or her new club shall be jointly and severally liable for its payment.
In addition to paying compensation, sporting sanctions are imposed on any player and club found in breach of contract during the protected period. This is so because the club which signs such a player will be presumed to have induced the player to terminate his contract. The protected period is defined in the RTSP as a period of three entire seasons or three years, whichever comes first, following the entry into force of a contract concluded prior to the professional's 28th birthday, or two entire seasons or two years, whichever comes first, following the entry into force of a contract concluded after the 28th birthday of the professional. In the case of a player, the sporting sanction is a four-month restriction on playing in official matches, which may be prolonged to six months in case of aggravating circumstances, pursuant to Article 17(3) of the RSTP. For clubs, Article 17(4) stipulates a ban from registering any new players, either nationally or internationally, for two entire and consecutive registration periods. A club will be able to register new players, either nationally or internationally, only as of the next registration period following the complete serving of the relevant sporting sanction.
Finally, as regards the registration of players, Article 9 of the 2014 RSTP stipulated that players registered at one association may only be registered at a new association once the latter has received an International Transfer Certificate ("ITC") from the former association. Annex 3, Article 8(7) of the 2014 RSTP provided that the former association shall not deliver an ITC if the former club and the professional player are involved in a contractual dispute concerning the question of whether the contract has expired or whether there has been a mutual agreement on the early termination of the contract.
The findings of the ECJ
Rules of sports federations generally subject to review under EU law
Recalling its findings in Superleague,3 the ECJ held that the rules adopted by sports federations generally fall within the scope of EU law except where these rules have been adopted exclusively for non-economic reasons and for matters of interest only for sport as such. This is a narrowly defined exclusion concerning, e.g. rules preventing participation of foreign players in national teams or rules fixing ranking criteria used to select athletes taking part in competitions on an individual basis. According to the ECJ, in other instances sports-related specificities can be considered in the interpretation of the relevant EU law provisions.4
In the present case, the ECJ confirmed that the relevant RSTP rules fall within the scope of application of Articles 45 and 101 TFEU. In the eyes of the ECJ, the transfer and registration rules directly impact both the work of football players as a professional economic activity as well as the club's composition of teams for competitions, which forms part of their professional activities.5
Certain aspects of FIFA’s transfer rules are incompatible with the guarantee of freedom of movement under Article 45 TFEU
The ECJ held that the challenges aspects of transfer rules regarding compensation and sporting sanctions were inconsistent with the guarantee of freedom of movement under Article 45 of the TFEU.
In the eyes of the ECJ, the rules have the potential of depriving, to a very large extent, any player of receiving firm and unconditional offers from clubs established in other Member States, because "the existence of these rules and the combination of them means that these clubs are faced with major legal risks, unpredictable and potentially very high financial risks, as well as major sporting risks, which, taken together, are clearly likely to dissuade them from hiring such players".6 According to the ECJ, the above set of rules is thus "likely to disadvantage professional soccer players who have their residence or place of work in their Member State of origin and who wish to carry out their economic activity on behalf of a new club established in the territory of another Member State by unilaterally terminating […] their employment contract with their former club, for a reason which the latter claims or risks claiming, rightly or wrongly, is not just".7
The ECJ noted that it was for the domestic court to determine whether, in the circumstances of the specific case, the adoption of such rules could be justified. The ECJ indicated that the objective pursued by the RSTP, which is to maintain a certain degree of stability in the composition of teams and continuity of contracts, is a possible means of achieving the legitimate objective of ensuring regularity of interclub football competitions.8
However, the ECJ noted that the rules in question appear to go beyond what is necessary to achieve that objective. In particular, the ECJ took issue with the criteria for determining the level of compensation due which did not sufficiently take into account the domestic law governing the contract, were unclear and vague, included considerations outside the control of the player or related to elements that post-dated the conclusion of the original contract.9 It also considered problematic the fact that the new club would automatically and thus without taking into consideration the particular circumstances of each case be held jointly liable for the ill-defined compensation.10 In addition, the ECJ found disproportionate also the blanket presumption that the new club would have induced the player to terminate the contract early, leading to severe sporting sanctions. The ECJ reasoned that the lack of consideration of the particular circumstances and the absence of any qualification of the presumption based on at least an indication supporting this presumption meant that it was disproportionate.11 It noted that the sporting sanctions regime imposed by Article 17(4) of the RSTP appears "manifestly devoid of any relationship of proportionality with the breach attributed to the new club concerned".12
Finally, according to the ECJ, the rule whereby the former association is prohibited from issuing an ICT in cases where the former club and player are involved in a dispute linked to the premature termination of the employment contract "manifestly disregards the principle of proportionality, in particular in that its application ignores the circumstances specific to each individual case, in particular the factual context in which the breach of contract occurred, the respective conduct of the player concerned and his former club and the role or lack of role played by the new club, which is ultimately subject to the ban on registering that player and fielding him in competitions".13
Certain aspects of FIFA’s transfer rules are restrictions of competition by “object” and thus incompatible with EU competition law
The ECJ ruled that the above aspects of the RTSP rules are also inconsistent with the provisions of Article 101 TFEU. Article 101 prohibits as incompatible with the internal market "all agreements between undertakings, decisions by associations of undertakings and concerted practices which may affect trade between Member States and which have as their object or effect the prevention, restriction or distortion of competition within the internal market".
The ECJ recalled that in principle, it can be legitimate for an association such as FIFA to subject the organization and running of international competitions to common rules intended to ensure the homogeneity and coordination of those competitions within an overall annual or seasonal calendar and, more broadly, to promote, adequately and effectively, the holding of sporting competitions based on equal opportunities and merit. In particular, according to the ECJ, it is legitimate for such an association to regulate, by means of common rules, the conditions under which professional football clubs may form the teams participating in such competitions and those under which the players themselves may take part in them. Furthermore, the ECJ found it legitimate for FIFA to ensure effective compliance with these common rules by means of sanctions to be imposed.14 In this context, the ECJ held that it may be legitimate for an association such as FIFA to seek to ensure, to a certain extent, the stability of the composition of teams which are composed by clubs during a given season, "for example by prohibiting, as does article 16 of the RSTP, the unilateral termination of employment contracts during the season, or even during a given year".15
At the same time, however, the ECJ held that not even the specific features of football and its market conditions allow a "generalized, drastic and permanent restriction, or even a prevention, throughout the entire territory of the European Union, of any possibility for clubs to engage in cross-border competition by unilaterally recruiting players already engaged by a club established in another Member State or players whose employment contract with such a club is allegedly terminated without just cause".16
According to the ECJ, a combined reading of the relevant aspects of the RSTP rules at issue show that they are such as to restrict in a generalized and drastic manner the competition between professional football clubs established in different Member States as regards the recruitment of players already engaged by a given club. The ECJ emphasized the following elements, which render the RSTP rules at issue, inconsistent with Article 101 TFEU. Unless the agreement of the former club is obtained in the context of a negotiated transfer, the mere fact of hiring such a player exposes the new club to the risk of being held jointly and severally liable for the payment of compensation of a potentially very substantial amount (Article 17(2) RSTP). Moreover, the amount of compensation is highly unpredictable for the new club given the nature of the calculation criteria set forth in Article 17(1) of the RSTP. Furthermore, the new club risks a severe sporting sanction in the event that the player is recruited during the protected period of the contract that bound the player to his or her former club and where the new club fails to overturn the presumption of incitement to breach the contract. This sporting sanction prevents a new club, according to the ECJ, from fielding any other new player during a match, a situation that deprives a recruitment of any effective practical interest. Moreover, the ECJ highlights that this generalized and drastic restriction of cross-border competition between clubs through the unilateral recruitment of players under contract with another club extends, from a geographical point of view, to the entire territory of the EU and is, in temporal terms, permanent in that it covers the entire duration of each of the employment contracts that a player may conclude.17
Under the guise of preventing aggressive recruitment practices, according to the ECJ, these rules correspond, "in fact, to non-poaching agreements between clubs which, in essence, result in artificially partitioning the national and local markets, to the benefit of all clubs".18
Accordingly, the ECJ concluded that "the content of the rules at issue […], from the economic and legal context in which they are set and the objective aims which they seek to achieve shows that those rules present, by their very nature, a high degree of harm to the competition which professional football clubs could engage in by unilaterally recruiting players already engaged by a club or players whose employment contract has allegedly been terminated without just cause, and therefore by seeking to gain access to the resources essential to their success, namely top-level players. In those circumstances, those rules must be regarded as having the object of restricting, or even preventing, that competition, and that throughout the entire territory of the European Union".19
In this respect, the ECJ emphasized the "general, absolute and permanent" nature of the restriction as particularly disconcerting.20 In its view, "the classic mechanisms of contract law, such as the right to receive compensation by the club in the event of a breach of contract by one of its players, where applicable at the instigation of another club, in breach of the provisions of that contract, are sufficient to ensure, on the one hand, the long-term presence of that player in the first-mentioned club, in accordance with those provisions, and, on the other hand, the normal operation of market rules between clubs, which allow them, upon expiry of the normal duration of the contract or earlier if a financial agreement is concluded between clubs, to proceed with the recruitment of that player".21
Given that it found the rules to be a restriction by object, the ECJ recalled its earlier case law that there is thus no possibility to exempt certain measures from the scope of Article 101 (1) TFEU when adopted pursuant to a legitimate objective and where such measures are necessary and proportionate.22 While the ECJ left it to the domestic court to examine whether the rules could be justified under the strict conditions of Article 101(3) TFEU, it already noted that these rules appeared to be discretionary and disproportionate in nature and provided for a generalized, drastic, and permanent restriction of competition, and found that this precludes, prima facie, the consideration of those rules as being indispensable or necessary for the achievement of efficiency gains in the organization of club football competitions as required under Article 101 (3) TFEU.23
Conclusion
The ECJ's decision makes it clear that certain aspects of FIFA's rules governing the compensation obligations and sporting sanctions that result from an early termination of a contract in the absence of "just cause", are incompatible both with the freedom of movement under article 45 TFEU and with EU competition law.
The legal consequences and practical impact of the decision remain to be seen. On the one hand, the ECJ acknowledged that it is a legitimate objective to seek to protect the regularity of club competitions which, in turn, requires a degree of stability in the squads and thus a degree of continuity in the contracts of the players. On the other hand, however, it clearly considers that the way financial liability is determined and allocated and the extent of the sporting sanctions imposed in connection with the unilateral termination of the contract by a player and the unconditional presumption of incentivizing such termination by the new club are disproportionate and thus unlawful. It remains to be seen whether carefully re-drafted transfer rules, which allow for sufficient consideration of the specific circumstances of the case and a more objective approach based on the domestic law in force to determining the compensation due, would pass the ECJ's tests under Articles 45 and 101 TFEU.
Should the judgment lead to a major overhaul of the transfer system and a related reduction in transfer fees, given the possibility of losing a player based on the unilateral termination of the contract, it may be important to examine also the impact that this would have on FIFA's Solidarity Mechanism which is financed by the compensations paid for an early contract termination and related club transfer. Article 21 of the RSTP states that if a professional is transferred before the expiry of his contract, any club that has contributed to his or her education and training shall receive a proportion of the compensation paid to the former club (solidarity contribution). The solidarity contribution is calculated based on 5% of any compensation and reflects the number of years (calculated pro rata if less than one year) a player was registered with the relevant club(s) between the calendar years of his 12th and 23rd birthdays, in accordance with Annex 5 of the RSTP. Significantly reduced transfer fees, if any, will thus have direct effects on the solidarity mechanism. This was not something that was considered by the ECJ.
1 European Court of Justice, Fédération internationale de football association (FIFA) v BZ ("Diarra"), C‑650/22, 4 October 2024.
2 Articles 13 and 14 of the RSTP.
3 European Court of Justice, European Superleague Company SL v Fédération internationale de football association (FIFA), Union of European Football Associations (UEFA), C-333/21, 23 December 2023.
4 European Court of Justice, Diarra, supra fn. 1, paras. 76, 84 (translation by the authors).
5 Id., paras. 80-82.
6 Id., para. 92.
7 Id., para. 91.
8 Id., para. 102.
9 Id., paras. 106-107.
10 Id., para. 108.
11 Id., para. 110.
12 Id., para. 110.
13 Id., para. 112.
14 Id., para. 143.
15 Id., para. 144.
16 Id., para. 145.
17 Id., paras. 139, 140.
18 Id., para. 145.
19 Id., para. 148.
20 Id., paras. 145-146.
21 Id., para. 145.
22 Id., paras. 149-152.
23 Id., paras. 153-157.
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