Football at a Crossroads

The CJEU shook the world of football with its Diarra ruling on Friday, October 4. The impact of the ruling is all but a surprise for me. In fact, I’ve been talking and writing about the case since 2017 (see here and here) and arguing that its transformative potential for football could be greater than the Superleague judgment (see here). In a way, as recognised by Stephen Weatherill shortly after the 2001 Agreement, the FIFA transfer system (as structured after the 2001 Agreement between the EC, FIFA, UEFA, ECA and FIFPro) was always on shaky legal grounds in terms of EU internal market law. Now, the chickens have come home to roost and key parts of the football transfer system have been brutally set aside. I have already provided an overview of the key points of the decision in a twitter thread and in a radio interview (in French), and Stephen Weatherill has done an elegant and limpid run through the key aspects of the ruling in a blog that everybody interested in football, sports law, or EU law should read. In this blog, I will instead aim to explain why the Diarra ruling marks a crucial turning point for football, its economy and even its identity.

How Bosman led to Diarra: a tale of transnationalisation and commercialisation

Diarra is certainly very different than Bosman, but is it less important for the future of football? Probably not. Ironically, Diarra stems from the effects of Bosman on football’s labour market and its transnational regulation. It is because of Bosman that football players started to move in great numbers around the globe and that a transnational labour market (and transfer market) consolidated. Thanks to the introduction of FIFA’s Regulations on the Status and Transfer of Players (RSTP and its interpretation by the CAS), this transnational labour market became the only labour market in the world on which it is possible and natural to speculate on the breach of contracts of workers (what is called in layman’s terms a transfer). In fact, each year, FIFA celebrates (see here for 2023) both the increasing number of (negotiated) breaches of contract and the growing amounts that exchange hands in this context.

The main point of adopting the RSTP was never to strengthen the stability of contracts (contrary to what was professed in 2001). Its primary function was to create so much financial and sporting risks for players (and their new clubs) to transform their contracts in valuable assets on which one could speculate as if they were properties. It is this speculative bubble, attached to football’s transnational labour market, that the Judgment has brought down. This transnational market was a regular source of abuses for players (if you look beyond the one percent), child trafficking, corruption and tax evasion. It was not an institutional construct that we should be celebrating and wanting to protect. Bringing this market down is in itself a massive feat, which affects profoundly how we will experience football and perceive players in the future. No longer as goods which clubs should buy at low price and sell at a high one, but as humans in whom a club ought to invest to keep them happy workers. So, Diarra is not Bosman, it’s Diarra and it’s a rare opportunity to reshape football radically.

The end of the FIFA transfer system as we know it

Let me try to unpack a bit why I believe this decision to be fatal for FIFA’s transfer system as we know it. Despite FIFA’s communication, which has largely downplayed the scope and impact on the Judgment, the ruling strikes at the heart of the transfer system by going after its two main pillars enshrined in Article 17 RSTP. On the one hand, it attacks the way in which the financial compensation owed by a player in case of a breach of contract without just cause is calculated (see paras 106-107). More specifically, the Court considers that Article 17 RSTP renders the compensation both unpredictable and “particularly excessive”. In short, while the Court does not exclude the payment of damages in case of an unjustified breach of contract, these damages must be calculated on the basis of clear and objective criteria aligned with the applicable national labour law. While I’m not a comparative labour lawyer, I doubt that under many national laws the breach of a fixed-term contract would lead to the award of damages unrelated to the remaining salary owed to the individual (and/or the reasonable costs incurred to find a replacement to the player). In principle, this means that from now on the financial risk faced by the player in case of breach has become at the same time more predictable and more limited. Accordingly, the players’ incentives to breach their contracts unilaterally, if they are dissatisfied either contractually or sportingly, have increased substantially.

On the other hand, the Court also teared down a fundamental specificity of the RSTP: the presumption of joint liability of the new club for the breach of contract (paras 108-111). I do not know of any other labour law system in which the new employer of a person who breached a labour contract is presumed jointly liable for whatever damages the breach has caused to their old employer. In effect, through Article 17 RSTP, FIFA extended the risk of liability connected to the players’ breach of contract to the new club. Moreover, this risk was not only financial, it entailed as well the risk of being unable to recruit players for two transfer windows, which can have (as experienced by Cologne recently) adverse consequences for the sporting competitiveness of a club. Hence, this provision was essential in discouraging clubs from recruiting players who unilaterally breached their contracts, driving them instead towards negotiating an agreement with the player’s current club before recruiting them. The Judgement, by striking down the presumption of joint liability, has in effect drastically limited this risk, which will incentivize clubs to in turn incentivize players to breach their contracts unilaterally by offering them big signing bonuses instead of paying transfer fees.

While FIFA is certainly right to remind us that the Court has not annulled the entire RSTP (this was anyway never going to happen in a case focused only on Article 17 RSTP and annex 3), the Court has in fact brought down the two main pillars of the transfer market. Without them, players are much more likely to take the (quite limited) risk to breach their contracts unilaterally, clubs are much more likely to take the (quite limited) risk to hire them, and there is no real reason left, besides charity, for anybody to pay a transfer fee to facilitate the move of one player from one club to another. It is fear of financial and sporting retribution that is holding the transfer market together and transforming players into tradeable assets. Without this fear, the market collapses. FIFA should be much more forthright in recognizing this situation and should do its best to mitigate, in partnership with players’ representatives and club associations, the potential adverse impacts of the ruling.

The threat to the redistributive function of the transfer system

The main problem resulting from the Diarra ruling is that the transfer system not only served a speculative function, but also redistributed financial resources transnationally. As evidenced by the studies of the CIES (see here), transfers were enabling some redistribution of funds from rich leagues/clubs (mainly the English Premier League and more recently the Saudi League) to the rest of the world (and, in particular, the Belgium, Dutch, Portuguese, Argentine and Brazilian leagues/clubs). The immediate economic effect of the ruling will be to impoverish the clubs/leagues which were profiting from this redistribution, as well as the players who are not heading to the Premier League or the Saudi Pro League. Hence, if nothing is done to devise an alternative mechanism of transnational redistribution, the gap in resources between leagues, clubs and players is likely to grow.

In my view, the damage done by the ruling to the redistributive function of the transfer system is a real worry, but as pointed out by AG Lenz in his Opinion (check out para 226-233) under Bosman (30 years ago), there must be another way to fulfil this function, which does not depend on building a speculative market on the players’ back. In any case, ensuring that some form of transnational solidarity between leagues and clubs is maintained (and, therefore, some competitive balance preserved) will be one of the major issues that will have to be decided in the framework of the upcoming negotiations between FIFA and the representatives of the clubs and the players. In this regard, Diarra decision is not only valuable because it puts an end to a system which was restricting players and transformed football into an industry driven by speculation and financialization, it will also profoundly affect football’s governance. The Court’s emphasis that the current transfer system was manifestly in favour of employers can be read as a not-so-veiled message to FIFA that any replacement will have to be collectively bargained.

The structure of EU competition law itself will incentivise such bargaining as collective agreements do not fall under its scope (see Albany). In short, players should finally get a seat at the table. While they are the main actors of the game and those primarily affected by FIFA’s regulations (in particular the RSTP), until now their voice was barely heard. This is about to change.

Football at a crossroads

Football is entering a time of turbulences, uncertainty and change. This is also an opportunity to reshape its governance and move away from the brink of a total financialization of the beautiful game. This will not be easy, the Superleague is lurking. But, paradoxically, football has the CJEU on its side if it wants to go in a different direction. As I and others have written elsewhere (see here and here), the Court is (and has always been) in favour of solidarity, competitive balance, openness of competitions, stability of teams, and incentivizing training. However, to benefit from the Court’s benevolence, FIFA and UEFA need to pursue these goals in a much more democratic and accountable fashion, and not only pay lip service to them when they have their back to a judicial wall. In fact, it is FIFA and UEFA’s betrayal of these ideals, through the introduction of an increasingly meritocratic and closed Champions League, and through the RSTP’s institutionalization of a speculative market that turns players’ labour contracts into assets, which the Court has rejected in Superleague and Diarra. Now, football has a stark choice to make. It can go down the road of an American-style full-blown commercialization with some form of European Superleague, or it can take the values it invokes seriously and hammer out a new football deal.