FIFPro’s Challenge to the Player Transfer System in Europe

FIFPRo, the union that represents professional football players globally, recently launched a competition law challenge to the player transfer system in Europe. Formally speaking, they have initiated this by lodging a complaint with the Competition Directorate of the European Commission. It could be a long process.

I was retained by FIFPro earlier this year to write an economic analysis of the issue, and that analysis has been lodged with the complaint. I think FIFPro plan to publish it in the near future, but in this blog I just want to set out in lay terms what I think is at issue. Two important points to begin with:

1. This is not about further enriching stars that make that already make millions. FIFPro has around 65,000 members, and most live on relatively modest salaries. According to UEFA, in 2012 the median top division club had revenues of €2.5 million and clubs spent 65% of their revenues on wages. Assuming a squad of 25 players, this implies a median wage of around €65,000 per year among the 18,000 top division players. This is not a bad salary, but the majority of professionals earn less than this. Bearing in mind that careers are short, few of FIFPro’s members could be called “wealthy”.
2. This is not about haggling over contract terms. The current system denies football players some of the basic the employment rights that almost every other employee in the European Union enjoys. Most people are free to move jobs whenever they like. Most people can move jobs at any time of year that they like. These are legally protected rights. But in the name of football, the employees of clubs are denied these rights. Common sense says that denying a large class of people their ordinary legal rights requires a pretty solid justification. And that is the key problem- most of the justifications advanced are pretty feeble.

It seems undeniable that many players experience real hardships under the current system. Typically a player who has not been paid his wages cannot even start legal proceedings to void the contract and find a new employer until three months have elapsed. Most of us would struggle to survive three months without a salary.

Then there is a fairly slow disputes procedure involving FIFA’s Dispute Resolution Chamber (DRC) and possibly an appeal to the Court of Arbitration for Sport (CAS). If a player takes unilateral action then there is a real risk of being obliged to pay compensation far in excess of anything the player might ever earn and be banned from playing professional football for a considerable period of time (as happened in the well-known Matuzalem case).

In practice most players just have to put up with abuses. This is not to say that all clubs are bad employers – many of them are exemplary- but a significant fraction are mistreating players and are protected by the transfer system. Examples of the kinds of abuse suffered by players can be found in FIFPro’s Black Book.  To be sure, in some cases players are guilty of misbehaving – but under the current system the clubs are far better protected.

So how did this come about? After the football authorities lost the Bosman Case in 1995 a new system for governing transfers was required. The European Commission insisted that FIFA develop a system that balanced the needs of football with the rights of players, and the negotiation process resulted in FIFA Regulations on the Status and Transfer of Players in 2001, which have been updated several times since. The main elements of the rules are:

(i)                  Contracts must be between one and five years long

(ii)                Within the first three years of the contract (the protected period) the contract  cannot be broken without either “just cause” or “sporting just cause”

(iii)               After three years unilateral breach of contract is permitted with compensation.

(iv)              Players can only move during transfer windows covering about 10 weeks of the year

(v)                A fraction of any transfer fee must be paid to any clubs the player was registered with between the ages of 12 And 21 (training compensation) if the player is under 23, otherwise a fraction of the transfer fee is paid to former clubs in the form of a solidarity payment.

Under European law most people can unilaterally breach their employment contract whenever they like, without paying compensation, and can move jobs 52 weeks of the year. The justifications for denying football players the rights that most other Europeans enjoy come under four headings:

1. Maintaining contractual stability
2. Developing young players
3. Improving competitive balance
4. Maintaining solidarity

These are all potentially valid goals. However, they are not a valid defence if

(a)    They do not actually achieve the stated purpose

or

(b)   There is a less restrictive alternative

or

(c)    The restriction is disproportionate relative to the stated ends

Think of it like this. We used to have a rule that people could be hanged for stealing a loaf of bread. We would not consider this an appropriate punishment today since it still wouldn’t bring an end to theft, and even if it did we think there are better alternatives and in any case, even if you think this is the best alternative, the punishment is wholly disproportionate to the crime.

Maintaining contractual stability

The football system in Europe and most of the world is highly unstable in the sense that financial crisis is common among most clubs below the elite level. The promotion and relegation system ensures that clubs experience significant financial shocks that require considerable adjustment- often including the wholesale restructuring of a playing squad.  This instability has always been there and has been exacerbated by the growing financial gap between higher and lower divisions. The system is inherently unstable, and the transfer system does not address this inherent instability.  Now, as it happen, I think this instability is an important source of the attraction and excitement of football. Football is world’s dominant sport, and has if anything become more dominant in recent years, in part thanks to the excitement that the instability creates. But even if you disagree with me on that and think that reducing instability is a desirable goal, tying players contractually to their clubs does not address the source of the instability.

Developing young players

Promoting healthy participation in sports like football is a valid social objective, but restricting the rights of players for the purpose of producing more professional football players is highly dubious as a mater of national public policy. As far as I know, no one thinks it would make sense for my employer, the University of Michigan, to have to compensate Oxford University or Birkbeck College for the education they gave me, still less Raynes Park High School or Pelham Middle School. If we want more professors for the public good we use taxpayer money to subsidise education rather than imposing a specific tax on people who are already professors. But football is not governed by the state, it is a private activity governed by organizations such as FIFA and UEFA. IF these organizations, and their member clubs, want to promote the development of professional players they can agree on a system of taxing clubs to do so.

Improving competitive balance

That this argument is even advanced seems amazing. One thing we know about European football is that there is very little competitive balance. In my most recent book I provide the evidence to show that European football is, and always has been, characterized by “dominance and distress” – a small number of big clubs that always win, and a large rump of smaller clubs that continually live on the edge of financial collapse and seldom match the dominant clubs. The judgment in the Bosman case 20 years ago ridiculed the argument that the old transfer system actually promoted competitive balance. Nothing has changed since then.

Maintaining solidarity

“Solidarity” is a very good word to use if you want to win an argument relating to European law, since the basic treaty of the European Union contains no less than 13 references to the concept, legally speaking, it is “a good thing”. Solidarity payments do provide a small trickle of money from the largest clubs- but it is very small indeed. Moreover, tying solidarity payments to transfer fees is a very inefficient mechanism. Most small clubs rely on local talent- they can’t afford to recruit from all over the world. No doubt a better training mechanism can help a player’s prospects, but the chances that a small club will find a player good enough to eventually command a very high fee and therefore produce an income for the club are really small, and really depend as much on the natural ability of the players born in the local area. Developing young talent for small clubs is more like playing the lottery than like playing chess.

From all this I conclude that the transfer system, while imposing significant restraints on the players, does little to advance its stated goals and therefore cannot be justified under the law. But I go even further than this. In the paper I argue that the transfer system has an anticompetitive effect, rendering it a violation of European competition law. There are important details for competition law experts in this, but I think the basic point is quite simple.

As I say, European football is, and always has been, dominated by a small number of clubs. These clubs are the source of most of the high value transfer spending, and a large fraction of the money simply recirculates among them. The net transfer of funds among these clubs is much smaller than the headline figures. Why do they do this? The fees agreed are usually far in excess of any economic damage to the selling club due to losing the player. I argue that the big clubs have a vested interest in maintaining a world of high fees for top players since this creates a significant financial barrier to the majority of smaller clubs. If players could move more freely and without the payment of large transfer fees, it would be open to more clubs to hire top players on short term contracts and thereby create more competition at the highest level.

One final word.  I have spoken to several journalists about this and the most common reaction is to state (a) a world without transfer fees would be a world of chaos and (b) that I am obliged to provide a fully worked out alternative in order to justify the case against the present system. Both of these argument are wrong. As far as chaos is concerned, there is no real reason to think that this is the case. At worst, we would continue to live in a world where big clubs dominate and most clubs live in the edge of financial collapse. No change. At best, we might see the smaller clubs attempting to match the big clubs by hiring top players on short term contracts. Of course, a world without any transfer fees would present some challenges. But what we are discussing is eliminating a set of rules which are unjust and, in my view, illegal because they breach the European competition law. After Bosman, the football authorities sat down to create a new system, which is what we have today. If this system were now to be abolished, no doubt there would be negotiations and a new system created. It is not necessary to pre-judge that new system in order to accept that the current system is unjust and illegal.