Tuesday 22 October 2019

Fair Play legal challenge sets up Bosman sequel

UEFA regulations governing football clubs are about to be tested in EU courts, writes Niall Collins

UEFA President Michel Platini
UEFA President Michel Platini

Niall Collins

We know relatively little about Belgian football agent Daniel Striani. On the other hand, the landmark Bosman case catapulted Belgian sports lawyer Jean-Louis Dupont into the limelight and saw the term 'Bosman' secure a permanent place in both the sporting and legal lexicon.

To recap, nearly 18 years ago, Dupont and Bosman listened as the Court of Justice of the EU (CJEU) decided, amongst other things, that restrictions which prevented out-of-contract footballers from moving to new clubs after their contracts had expired infringed EU law.

I believe we now have another Bosman on our hands.

Striani, represented by Dupont, recently lodged a complaint with the European Commission. The complaint alleges infringements to fundamental principles of EU law caused by some provisions of UEFA's Financial Fair Play regulations. Versions have also been introduced in England by the Premier League, the Football League, Italy's Serie B and Spain's La Liga.

The main tenet of the regulations is that clubs live within their means. They must not spend more than they earn each year, beyond a set 'acceptable deviation'. This is known as the break-even principle.

Income can include gate receipts, broadcasting rights, sponsorship deals, advertising and commercial activities including profit from player transfers. Expenses include buying players and paying their wages, finance costs, dividends and other operating expenses.

UEFA encourages certain expenditure that benefits a club's long-term sustainability. Accordingly, spending on stadium development, youth team programmes, community development activities and amortising intangible fixed assets is excluded from the break-even calculation. Penalties for breaching them will include reprimands and warnings, fines, deductions of points, the withholding of prize money, restrictions on new signings, disqualification from competitions and exclusion from future ones.

History confirms that UEFA is not slow in using its powers. It has recently excluded Spanish club Malaga and Turkish clubs Besiktas and Bursaspor from UEFA club competitions, for varying periods, for violation of club licensing and FFP regulations.

The regulations are proffered by UEFA as a positive step to address spiralling debt in the European game and are designed to deliver much-needed financial stability. Deloitte, in its Annual Review of Football Finance 2012, opined that "control of player wages, in order to deliver robust and sustainable businesses, continues to be football's greatest commercial challenge".

Two other findings in the report provide further context. Operating margins of Premier League clubs, which stood at 16 per cent in the inaugural season, narrowed to just three per cent at the end of the 2010/11 season. And one third of clubs in the Championship manage wage bills which exceed their income. Accordingly, owner-funding has become of paramount importance in subsidising the cost base and ensuring the continued financial viability of many clubs. There is an obvious problem to be addressed. The objectives behind UEFA's efforts are, without doubt, laudable but the issue now is if UEFA has gone about it the right way.

Striani would argue that the break-even principle is anti-competitive and significantly impacts his ability to generate an income. Specifically, that the regulations are an agreement between competing businesses (the football clubs) to limit their commercial freedom of action. In this context, Striani is claiming that the break-even principle infringes competition law for the following reasons: it restricts investments in clubs; it fossilises the existing market structure, with the current big clubs preserving their dominance; and, it reduces the number of transfers, transfer amounts and deflates the level of player salaries and the earnings of players' agents.

He also claims that the break-even principle infringes other EU fundamental freedoms, such as the free movement of services (as far as players' agents are concerned), the free movement of capital (owners) and the free movement of workers (players).

Striani contends that the inherent restriction of competition and breach of the fundamental freedoms cannot be justified by the objectives mooted by UEFA, such as ensuring the long-term financial stability of European club football and preserving the integrity of its competitions.

There is significant merit in Striani's arguments. Competition regulators are prepared to make a distinction between purely sporting rules, which are objectively necessary, proportionate and inherent in

the organisation, and proper conduct of sport on the one hand, and rules which lead to a restriction of competition to the ultimate benefit of the contestants on the other hand.

UEFA believes financial fair play is fully in line with EU law and appears confident the European Commission will reject the complaint. It points to discussions between UEFA president Michel Platini and the European Commission, and also statements made by Commissioner for Competition Joaquín Almunia as somehow rubber-stamping the regulations. That is not the case.

The official letter from Commissioner Almunia applauded the regulations and the efforts of UEFA to protect the sport. It declared that the regulations were consistent with the State aid rules of the EU. Importantly, the letter mentioned only compliance with the State aid rules so the regulations are not immune from challenge under the competition and free movement rules.

So Dupont has now embarked on another journey, this time with Striani by his side. It will likely be a journey that will take them all the way to the CJEU. A key question in the legal battle will be whether there are more objective, proportionate and less restrictive means of ensuring financial fair play in European football. Clubs have always had to demonstrate, as part of their licensing applications, that there are no overdue payables to their employees, other clubs or to tax authorities. That is a sound starting point.

The introduction of a more modern revenue-sharing mechanism between clubs and/or leagues, partly financed by a luxury tax on the higher spending clubs, has also been suggested as a less restrictive means of ensuring a level playing field.

We are all likely to become a little more familiar with the name Daniel Striani.

Niall Collins is an EU & Competition Partner at Irish law firm Mason Hayes & Curran

Irish Independent

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