FFP to breach European Sports Law?
Posted: Wed Mar 27, 2013 7:30 amNormally, if a trade association introduced rules that raised barriers to entry and entrenched dominant players, antitrust regulators would be up in arms. Yet UEFA—the Union of European Football Associations—seems to enjoy the support, even the encouragement, of the European Commission on new rules that will do just that.
The Financial Fair Play (FFP) rules, which come into force in the 2013-14 season, prevent football clubs from spending more than what they earn each year. Clubs that do not comply with this "break-even" principle will face sanctions, including a potential ban on participation in UEFA competitions.
The new rules, which were first proposed in 2009, are supposedly meant to stop clubs' ballooning financial losses, which according to UEFA have threatened both individual, highly popular clubs and the future of European football as a whole.
All of this sounds reasonable at first. But as an agreement whereby industry participants jointly decide to limit investments, FFP likely constitutes collusion and hence a violation of EU competition law. FFP may also infringe other EU freedoms such as the free movement of workers and services.
This isn't the view of the European Commission. In a letter dated March 12, 2012, competition chief Joaquin Almunia wrote to UEFA President Michel Platini to say that he welcomed the break-even rule, stating that "this principle is also consistent with the aims and objectives of EU policy in the field of State Aid."
But the European Court of Justice might see it differently. This wouldn't be the first case in which sporting rules are struck down by the EU's highest court. In the 1995 Bosman ruling, the ECJ ruled against restrictions that prevented football players from moving to new clubs after their contracts expired. The Luxembourg-based court also prohibited domestic football leagues and UEFA from placing quotas on the number of non-EU players allowed on teams.
In its Meca-Medina judgment of 2006, the ECJ set an even more important precedent: that sports do not constitute a special case before EU law. The court must apply the same tests to sports as it does to any area of economic activity. I was involved in both of these cases, and I would note that in each instance the governing bodies concerned had initially received the full support of the European Commission.
The relevant test for sporting rules, therefore, is that if they distort competition or other EU freedoms, they must do so no more than is necessary in pursuit of legitimate objectives. That FFP distorts competition and EU freedoms is plain: EU case law has held that football players are the raw materials for football clubs to produce their final product. FFP is a joint agreement between clubs to limit their freedom to hire players by restraining their ability to spend on wages and transfers. This restraint of free competition may at the same time constitute a violation of the free movement of workers.
The next question is whether the objectives of FFP are legitimate and necessary. UEFA has put forth several objectives for FFP, the first of which is preserving the long-term financial stability of European football. This is laudable but unlikely to be considered such a fundamental objective that it justifies restricting competition.
A second objective, to preserve the integrity of the game in UEFA competition, might be looked upon better. But in fact, FFP is more likely to hinder than help in this regard.
European club football is characterized by numerous competitive imbalances: between clubs competing in UEFA competitions, between the domestic leagues of different countries, and between individual clubs in those leagues. Often the key determinant of a club's financial strength is the size of its domestic market and the commercial realities that apply within it—competing in the English Premier League will always be more lucrative than in its Scottish counterpart. As a result, the leading clubs of smaller countries such as Luxembourg or Ireland will always be at a disadvantage next to the leading clubs of bigger markets.
The break-even rule makes no allowance for the commercial disparities between individual national leagues, which means smaller clubs are hit harder, proportionately, than larger ones. Without the ability to invest in their longer-term success, smaller clubs will stay small. This is clearly anticompetitive.
Even if FFP were sufficiently legitimate and necessary to justify its distortions of EU principles, however, it would still have to clear a final hurdle: proportionality. UEFA would need to convince the EU's judges in Luxembourg that FFP is the least restrictive means of achieving its aims.
This seems unlikely. Existing UEFA regulations already require clubs to prove before the start of each season that they have no overdue payables to other clubs, to their employees or to tax authorities. With these safeguards already in place, it is hard to see why we need to stop clubs from incurring losses if and when they can safely fund them from the resources at their disposal.
If the ECJ were to declare FFP invalid, the ruling would hold for any FFP-based rules adopted at the national level. EU law also applies to restrictive practices that affect the territory of any single member state.
None of this implies, however, that competition law prevents UEFA from improving football's financial model. If UEFA is serious about tackling the issue, it should address the root causes of the competitive imbalances among teams. UEFA's territorial model could be redrawn, for instance, to allow clubs from major cities but small countries to become more competitive. More ambitious revenue-sharing between clubs and/or whole leagues, partly financed by a "luxury tax" on high-spending clubs, would also help.
But such solutions would run against the interests of the clubs with the most political clout. Some of Europe's biggest clubs are, unsurprisingly, the loudest supporters of rules that entrench their dominance. The time is right for a strong reminder from the EU's antitrust authorities that football, like any other multibillion-euro industry, must comply with the law.
This was tweeted @mcfc. A lot of it has already been said on here before, but it's nice that it's all getting wider exposure.
http://online.wsj.com/article/SB10001424127887324077704578357992271428024.html