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Does the FIFA Ban on TPO infringe EU Law?

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Whether it be huge transfer fees, large broadcasting deals or the financial fair play rules, football and finance is rarely out of the news. The latest issue to rear its head is third party ownership of football players. Whilst the issue in the UK dates back to the well known Tevez-Mascherano saga in 2007, FIFA’s ruling in November 2014 has brought this issue to life.

Stephen Hornsby and Chris Smith of Goodman Derrick explain further.

What is Third Party Ownership?

Third Party Ownership (TPO) refers to the partial or total ownership of the economic rights’ of a football player by a third party, a non-footballing entity. Investment funds or individual investors buy a proportion of the economic rights of a player, the player’s economic rights are then jointly owned by the club and the investor. Upon the sale of the economic rights of that player to another club, the third party is then entitled to receive a percentage of the transfer fee which often results in them making a large profit. A classic example of this can be seen from the transfer of Neymar from FC Santos to FC Barcelona. Neymar was initially declared to have cost FC Barcelona £47.3m, but this was later reported to be nearer £71.5m. In the end it was reported that just €17.1m was sent to FC Santos and €40m went to a third party investor, a company owned by Neymar’s parents.

Reaction to TPO

In the UK, the Football Association (FA) introduced regulations, in 2009, prohibiting TPO of any player registered to any clubs within the FA. However, elsewhere in the world TPO is common. It is popular in the Spanish and Portuguese leagues and is a particularly entrenched practice in clubs in South America.

In September 2014 the FIFA executive committee discussed TPO with three potential approaches to resolving this contentious issue: (1) full transparency involving uploading all documents through FIFA’s Transfer Matching System, (2) full transparency, but involving restrictive regulations, or (3) an outright ban. FIFA’s president Sepp Blatter then later announced that the FIFA executive committee had voted to ban third party ownership of players outright, albeit with some transitional provisions for those TPO arrangements already in place, on the premise that the concept of TPO threatens the integrity of football. FIFA has introduced Article 18ter which prohibits TPO. The provision is to come into force on 1 May 2015. Existing TPO agreements are allowed to continue until expiration but without the possibility of extension.

Keep TPO in play?

Unsurprisingly criticism of FIFA’s decision to ban TPO has been forthcoming. Liga de Fútbol Profesional (LFP) and Liga Portuguesa de Futebol Profissional (LPFP), the Spanish and Portuguese football leagues, filed a complaint with the European Commission in February 2015 over FIFA’s decision to ban TPO stating that it infringes EU law. Following the ruling in Bosman, EU law applies to both national and international sporting associations. The European Commission cases of Meca Medina and Piau further established that EU competition provisions are applicable to sporting rules and, more importantly, to FIFA in particular, who as an association of football clubs that carries out economic activities, falls within the scope of EU competition law. Consequently, FIFA must abide by EU Competition law.

The basis of LFP and LPFP’s legal challenge falls within EU competition law, specifically Articles 101 and 102 of the Treaty on the Functioning of the European Union (TFEU). LFP and LPFP are therefore trying to establish that the ban on TPO is capable of affecting trade in or between Member States, ie, between the football clubs in those Member States.

Article 101 of TFEU concerns anti competitive agreements. The Article prohibits: “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”. Therefore, does the ban by FIFA on agreements between football clubs and third party investor/owners intentionally effect the prevention or restriction of competition between football clubs in the Member States?

Article 101(1)(d) states that there will be a competitive disadvantage where an agreement applies “dissimilar conditions for some undertakings to equivalent transactions with other trading parties”. LFP and LPFP are challenging FIFA, (which is deemed as an association of undertakings) on the premise that the ban will have a particularly detrimental impact on clubs with lower incomes / spending power and who have become increasingly reliant on sharing players’ economic rights with third parties. TPO provides these clubs with the opportunity to acquire players at an affordable price as they can share the cost with an investor. Once the ban is in force it is argued that these clubs will be unable to compete with the wealthier clubs in the transfer market.

Therefore the argument is that this ban will harm the clubs who have become reliant on TPO and distort competition between clubs therefore infringing Article 101. Notably, and clearly a point of contention for the smaller clubs, this ban is likely to have little effect on clubs like Manchester United, Real Madrid, FC Barcelona and Bayern Munich, as they have spending power which removes the necessity to rely on TPO. The likes of FC Porto however (who are through to the knock out stages of the Champions League yet again) are dependent on TPO. So without TPO will clubs from small broadcasting markets ever win the Champions League again?

There is also an argument that the ban infringes Article 102, which is intended to prevent a dominant position in the market being abused. The ruling in Piau determined that FIFA holds a collective dominant position in the market. The European Commission (EC) will have to determine whether the ban amounts to an abuse of this position. The ban has the potential to put smaller clubs at a competitive disadvantage to those larger clubs, which it could be argued, amounts to such an abuse.

LFP and LPFP have said they believe the ban also violates further fundamental EU liberties and they have reserved the right to bring further legal action against FIFA. In their joint statement the LFP and the LPFP said they “have faith that the European Commission will act swiftly, initiating the relevant disciplinary sanctions against FIFA and revoking the TPO ban”. If the challenge is successful FIFA will face both sanctions from the EC and claims for damages from those affected by the ban, which will include not just the clubs and their players, but also the third party investors.

Time to send off TPO for good?

There are, however, those who share the views of FIFA on this topic and would argue that a ban is justified in order to protect the integrity and reputation of the sport. There has been widespread criticism of TPO, with Michel Platini the UEFA President voicing his concerns over the practice. Platini and others believe that TPO degrades the players’ human dignity and inhibits their freedom to control their careers. TPO arrangements are often kept secret and therefore there is very little transparency and concerns have been raised about the potential conflicts of interest where the information concerning TPOs is not public.

Aside from any moral arguments as to whether third parties should be making such sums of money on the back of football transfers, from a legal perspective, an infringement of Article 101 is permissible if it is in pursuit of a legitimate objective and it is proportionate. Those against TPO will argue that the banning of TPO has been put into place in order to protect the players’ interests and the integrity of the sport, which ultimately is in pursuit of a legitimate objective.

Arguments have also been put forward that TPO contravenes the principles that have been laid down in the EU’s Charter of Fundamental Rights. Footballers become investments upon which those who invest take a share in their ‘economic rights’ and effectively become the party that barters for the footballer’s future, rather than the footballers themselves. This then becomes a restriction on their freedom to move and work for whomever they wish, a right enshrined in EU law.

However, whilst many agree that action to regulate TPO was needed, there has been criticism over the implementation of an outright ban and whether it was a proportionate response to the concerns relating to TPO. Other options that have been suggested include increased regulation of TPO, caps on the amount that could be invested by a third party and/or a disclosure process to encourage greater transparency of the practice. These measures would have been less drastic options in attempting to tackle the issues surrounding TPO.

Is there a breach of EU law?

The legal battle surrounding TPO will be focused on whether or not it can be proved that (1) the ban is in pursuit of a legitimate objective to protect the interests of not just the players and clubs, but also the sport in general, and (2) the ban unfairly restricts trade between football clubs (and mainly the less wealthy clubs) in the Member States, by preventing them from entering into negotiations for players they could have afforded with the assistance of TPO. The answer to these two questions are not clear and the EU will need to take a long hard look at the effects of such a ban on football in general before making a firm decision.

Other industries have not dissimilar arrangements without much concern being expressed. Music agents help to move their contracted acts from record label to record label. What is so special about sports’ integrity, human dignity and rights of man, when clubs freely move their players on when it suits them? The only legal issue has been whether the agreement with the ‘owner’ was freely entered into.

Looked at this way, isn’t the ban really about clubs seeking to keep some control – control that they are happy to trade to broadcasters and sponsors where they get to keep the whole proceed? If this is right FIFA will lose – again.

This article originally appeared in World Sports Law Report it is reproduced with kind permission.

This guide is for general information and interest only and should not be relied upon as providing specific legal advice. If you require any further information about the issues raised in this article please contact the author or call 020 7404 0606 and ask for your usual Goodman Derrick contact.