Extra time: are the new FIFA transfer rules doomed *?

• Author: Drolet, Jean-Christian
• Position: Federation Internationale de Football Association

With the Bosman decision, the European Court of Justice (ECJ) forced the Federation Internationale de Football Association (FIFA) to change its transfer rules. These new rules, adopted in July 2001, were supposed to answer the ECJ concerns about the restriction of the free movement

Introduction

The Bosman (1) decision of the European Court of Justice (ECJ) transformed the rules of international soccer (2) transfers, giving more freedom to the players. It also placed the Federation Internationale de Football Association (FIFA), soccer's international governing body, in a difficult situation. They were forced to revise their rules on international transfers in order to align them to the ECJ ruling. After a lot of bargaining and dealing the new rules came in effect in September 2001. In 2005, FIFA changed the rules again, in the hope to make them more robust and prevent future contestation. The purpose of this paper is to examine these new rules and to determine whether they violate article 39 of the Treaty establishing the European Community (Treaty) by restricting the free movement of persons and if so, whether they would meet the test for legality of such rules created by the ECJ in the Bosman case.

What are transfer fees?

This question may seem superfluous for the soccer fan, but for the reader that does not necessarily know the ins and outs of this sport, a short explanation may be needed. There are two ways for a soccer club to get the rights on a player. First it can train him from the beginning via academies or related amateur soccer clubs. The second way is to "buy" the rights to field a player from another club, this is called a transfer. The money that is paid from the buying club to the selling club is called a transfer fee. The North American sports fans are familiar with the concept of trades where teams trade players for other players. However soccer's tradition is to transfer players for money. (3)

Bosman, much ado about nothing?

There is a lot of literature on the Bosman decision. I do not intend in going in a detailed analysis of the case, but I consider that a short history of it and an analysis of its impact on the soccer transfers is necessary to help the reader understand the context that led to new transfer rules.

History of the case

Mr. Bosman was a promising young Belgian soccer player. At the expiration of his contract he ended up in a contractual dispute with his current club. In consequence he asked to be transferred to a new club. A deal was made between Bosman, his old club and a French club for his transfer. However, the old club had doubts about the financial strength of the French club and stopped the transfer procedures. Bosman had to obtain a court order to be able to sign a contract of employment with another club. In the proceedings, Mr. Bosman asked for a permanent injunction and compensation from his old club. His main argument was that the transfer system was a violation of the right of free movement of persons within the EU and a violation of the EU competition law. The matter was referred to the ECJ by the Belgian court (4). The ECJ therefore had to determine the legality of the transfer system. It decided that the transfer fees charged for a player that had ended his contractual relationship with the club was an illegal restriction of the free movement of persons. Regarding the competition law and the possible restriction of the market for players, the ECJ refused to consider it, since it was unnecessary for their ruling. (5)

However, before the ECJ decision, the Belgian appeal court had ruled that the transfer regulations were decisions of associations by which the clubs restrict competition for players between themselves, that transfer fees were dissuasive and tended to depress the salary of players and that the restriction on competition might constitute abuses prohibited by Article 86 (now 82). (6) One could argue that if the ECJ did not correct this reasoning, it means that the Court implicitly agrees with it. But I think that using freedom of movement was the simplest solution for the ECJ and it had the feeling that it would give the best results without having to address the competition law questions.

The impact of Bosmanon the transfer system in soccer

Before Bosman

Clubs would get a fee for the transfer of a player every time they transferred him to another club. There was always a value attached to the players The club could not lose them for nothing when the contract had expired. However, this could lead to situations in which the price asked for a player would be higher than what the other clubs were ready to pay. The player would then suffer from this situation, having to accept the unilateral contractual offer of his club that usually included a sharp decrease in revenues or be willing to strike until he was able to get transferred. This is exactly what happened to Mr. Bosman and it forced him to sue his former club. This was not a new problem since there were English cases before Bosman in which the players sued their clubs to get transferred, the first one dating back to 1912. (7)

Eastham v. Newcastle United was the first successful challenge of the English transfer rules. The court ruled that the transfer fees affecting Mr. Eastham were:

"(N)ot binding on the plaintiff and are unreasonable restraints of trade" (8).

So thirty years before the Bosman case, freedom was granted to the English soccer players. However, the clubs were able to maintain control on the players because of the absence of a strong players' association and of solidarity between players. (9) This situation prevented the player to use the decision as an efficient leverage during negotiations. New rules were drafted but they gave extra advantages to the good players and almost none to the marginal players. (10) So the opportunity to liberate the soccer players from the restrictive transfer system existed before Bosman. But the Eastham case had little impact, mainly for the reason that it did not have a pan-European effect like Bosman. Also, it was not based on antitrust law but on the Common law contract doctrine of "restraints of trade". The decision was therefore hard to import in the continental Europe jurisdictions. However, I find it notable that such a decision was not given more publicity in the soccer world; it could have brought big changes for the players.

After Bosman or organized chaos

The ruling of the ECJ was sharply denounced by the football community, even if it touched only about 10% of the active soccer players in Europe, the ones at the end of their contracts. (11) They were now benefiting from a strengthened negotiation position and they could "test the market" to get paid at their real value. The rest of the players were still affected by the transfer rules and did not gain more freedom. (12) During this period, players and clubs adjusted their behaviors in order to make the best out of the situation. Clubs that wanted to make sure that they would get something if a player left preferred to transfer players before their contract ended and receive a transfer fee instead of receiving on the field performance and the associated revenues from the player during the remainder of his contract. Additionally the clubs signed their valuable players with long term contracts. This behavior ended up being exactly as investment theory and the Coase theorem would predict. (13) So the forecasted apocalypse did not arrive and soccer survived.

The birth of the new system

In 2001, FIFA implemented new rules to regulate transfer fees. These rules were the object of negotiations with the European Commission. Its Competition Commissioner, Mario Monti, was reported to have been personally implicated in the drafting of the rules, so most observers call them the Monti rules.

We can find the legal justification for some regulation on transfers of players in the Bosman decision. In paragraph 106 the ECJ writes:

"In view of the considerable social importance of sporting activities and in particular (soccer) in the Community, the aims of maintaining a balance between the clubs by preserving a certain degree of equality and uncertainty as to results and of encouraging the recruitment and training of young players must be accepted as legitimate." (italics added)

In that statement, the ECJ says that it would be possible for the clubs to behave contrary to the free movement of persons and, I submit, to the antitrust laws, if these measures allow FIFA to achieve both these goals. (14)

These two justifications, maintaining competitive balance and encouraging the training of young players, also happen to be the traditional economic justifications for the transfer fees. Traditional economic theory of the transfer fees in soccer states that with this mechanism, the richer bigger clubs are prevented from buying all the good players. This results in a more equal repartition of soccer talent between the clubs. By having to pay a transfer fee, the cost of acquiring the player is higher and it prevents the richer clubs to "buy" a championship team every year. Also, the transfer fees allow the selling club to pay for new players or to give better salaries to the remaining ones. Always according to the traditional theory, the transfer fees also induce the clubs to invest in the training of the players since they will get a return on their investment. Professional soccer clubs are usually responsible, through football academies and amateur clubs, for the development of young players. In addition, they have to take care of the development of the players that are currently on their roster. The transfer fee is seen as the means to get back the costs of training the player that was transferred and the costs of training of the players that did not become professional players. So the costs of the single player should be adjusted to include the costs of all the players that did not succeed to access...