FIFA TPO ban cannot be justified under EU law

Introduction
On 22 December 2014, FIFA introduced an amendment to its Regulations on the Status and Transfers of Players banning third-party ownership of players’ economic rights (TPO) in football. The ban officially came into force on 1 May 2015.

The decision to put a definitive end to the use of TPO in football is controversial, and has led the Portuguese and Spanish football associations to lodge a complaint with the European Commission, asking it to find the FIFA ban contrary to EU competition law and the rules on free movement of persons.

What is TPO?
A football player registered to play in a club is usually part of the club’s assets. More and more often, third parties (agents, investors, investment funds) buy a stake in the future value of a player on the transfer market. They basically acquire an economic right over the career of a professional player. TPO can be described as a financial instrument that helps clubs buy promising players. It constitutes a new source of revenue for clubs and helps to reduce the acquisition cost of a player.

What are the problems with TPO?
TPO is viewed by some as an intrusion of a third-party in the life of a player and the affairs of a football club with the potential for illegitimate influence on the management of the club and the player’s career. The “logic” of short-term profit maximisation underlying TPO practices is not conducive to the development of players, it is said. This is above all valid for young talents transferred abroad before gaining solid experience in their home country. UEFA’s fallen leader Michel Platini has even likened TPO to a type of modern “slavery”. For the above reasons, TPO has been banned for some time in England, France and Poland.

In other countries, particularly Spain, Portugal and South American countries, TPO is seen as a pure necessity for national football clubs; not only to compete with clubs in richer countries, but also for professional football to be financially viable. It is estimated that in Brazil’s top division 90% of the players are part of a TPO agreement. Through TPO, many clubs are in the position to sign players who they otherwise could not afford. Moreover, clubs also profit from the ability to anticipate revenue by selling the rights of the players in their team. Thus, in terms of the competitive balance, the use of TPO enables small clubs to maintain their competitiveness against their bigger rivals.

These clubs will probably not be impressed by Platini’s “moral” argument that TPO is a form of modern slavery. An investor simply owns a share of the profit of a potential future transfer, not a part of a human being. Clubs typically own 100% of a player. How immoral is that?

Complaint
The Spanish and Portuguese Football Leagues have filed a complaint with the European Commission, arguing the prohibition of TPO violates EU competition law and rules on free movement of persons. Does the complaint stand a chance?
The CJEU’s Meca Medina ruling sets the scope for the assessment of the validity of transfer rules in relation to EU law principles on free movement and competition. In its judgment the Court first reiterated that sport is subject to EU law only in so far as it constitutes an economic activity. Where a sporting activity takes the form of gainful employment or the provision of services for remuneration, which is true of the activities of semi-professional or professional athletes, it is subject to Community law.

According to the Court, the provisions on freedom of movement for persons and freedom to provide services do not affect rules concerning questions which are of “purely sporting interest” and, as such, have nothing to do with economic activity.

In assessing the compatibility of the disputed (anti-doping) regulations with EU competition law, the CJEU noted that, first of all, account had to be taken of the overall context in which the decision of the sporting associations 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.

Argumentation
It is likely that the football federations have argued that both the integrity of the competition and footballers’ independence can be protected by measures that do not require the complete prohibition of TPO. For example, FIFA could limit third-party economic rights to a minority percentage together with other measures, such as limiting the number of players from the same club in which a third-party has minority economic rights.

Reference has probably been made to the Commission’s ENIC/UEFA decision. In that decision, the Commission took into account that the UEFA only prohibits the control of multiple clubs, but not the acquisition of minority stakes in them: "The UEFA rule does not limit the freedom of action of investors that have shares in clubs below the level that gives them control over the club, because clubs with such ownership structure remain free to play in the same UEFA competition”.

FIFA on the other hand will probably have pointed out that the TPO ban protects the integrity of the game itself by allowing for the necessary freedom in the contractual relationship between a club and a player, to determine whether and when the player is fielded as well as to decide independently and for sporting reasons only whether and when they are transferred. Contrary to the principle of contractual stability, the TPO business model promotes the use of the transfer system for the purpose of financial speculation. Within this framework, the trend of transferring players before the end of their contract increases.

Regulation instead of absolute ban
I don’t think a ban on TPO is the best way to achieve FIFA’s objectives. Proper regulation of the matter would in my view provide greater legal certainty for all parties involved. I can think of at least five reasons.

Firstly, the absolute ban imposed by FIFA, like most bans (whether on drugs, prostitution or human organs), will likely lead to the creation of a black market out of regulatory control and would therefore have the opposite effect; it would endanger the integrity of the competitions instead of protecting them.

Secondly, to believe that in a 20 billion euro market it should be between a professional football club and a professional player to determine for sporting reasons only whether and when a player is transferred is rather naive. (It’s the money, stupid …).

Thirdly, FIFA’s concern with undue pressure from third-party owners seems somewhat exaggerated. In practive, pressure to “force” a transfer is usually exerted by the player himself – because he is eager to play in a better league and for a better salary - and/or his agent. Not by the (partial) owner, because the owner may often not even be certain whether it is the right time to sell. Or what will happen to his precious investment when it is only used to warm Chelsea’s or United’s bench. I do not believe for a second that short-term profit maximisation typically underlies TPO practices. Sure, some people invest in Google or Microsoft stock to make a profit in the short term. But I do not think that this is typical. Many invest in stocks for the long run.

Fourtly, the ban reinforces economic inequality between South American and European clubs. It is a catastrophy for Brazilian and Argentinian clubs and a blessing for those in Europe, in particular those in countries that already have banned TPO - like England, for example. Brazilian club Santos will not be able to refuse a €10 million offer from Arsenal for a 19 year old player even if the club knows his value will double or triple if he stays at the club. With the TPO ban the club cannot rely on an investor paying, for example, €6 or 7 million for 50% of the player's economic rights to hold on to the player a few more years.

Finally, in addition to violating competition law and the rules on free movement of persons the TPO ban may also constitute an infringement of the Treaty rules on the free movement of capital. It could be argued that a ban prevents the establishment of an internal market for investors in football players and that restrictions may tend to affect the ability of players to move from one club to another, thus infringing free movement of capital principles.

Regulating TPO through transparency and disclosure obligations is a better alternative than an outright ban. It will be for the European Commission to decide whether to take the complaint forward and make a more substantive assessment or to reject the complaint.

Read my article HERE