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  • Writer's pictureSigurður Ólafur Kjartansson

Financial Fair Play Regulations Legitimate or not? - Part 2


The FFP's Anti-Competition legal claims


The primary antitrust allegation against UEFA is argued under Article 101 of the TFEU. Like mentioned before, UEFA is the sole body that organizes football competitions in Europe. As a result, it has a dominant position in the European football market, providing a potential for FFP to be challenged under either Article 101 or Article 102. (1).


Article 101(1) of the European Union's competition law states that all agreements between undertakings, decisions by associations of undertakings, and concerted practices that have as their object or effect the prevention, restriction, or distortion of competition within the internal market are prohibited. This includes agreements between businesses, decisions by associations of businesses, and concerted practices that may affect trade between Member States. A number of studies back up the claim that the FFP’s break-even criteria protects the major and established pre-FFP clubs while serving as a barrier to entrance for smaller teams due to the restrictions on investment. Unsurprisingly, the FFP has gained the support of some of Europe's most powerful clubs.


It is important to remember that these larger clubs have enormous political and financial power. The big clubs have even tried to break away from UEFA and start their own Super league. Under Article 102 of the Treaty on the Functioning of the European Union, according to the author of this theses it would be difficult for UEFA to ban clubs or players from participating in such a competition. However, UEFA threatened to sanction Super league clubs, which goes against EU competition law, UEFA's monopolistic control of football in Europe violates EU competition law by allowing UEFA to penalize clubs while benefitting as the organizer of lucrative events such as the Champions League and Europa League. UEFA confirmed in May 2021 that it had reached settlement agreements with the nine Super League members that had withdrawn their participation in UEFA. This includes a gesture of goodwill and a donation totalling an aggregate of €15 million to be used for the benefit of children, youth and grassroots football in local communities across Europe, including the UK and forfeiture of future award money, as well as increased financial penalties for participating in a similar initiative in the future.


The absence of participation from Europe's leading clubs would almost certainly result in a drop in UEFA's viewership and income, and ultimately, the organization's demise which according to the author of this thesis is a plausible explanation for why UEFA decided to reach the settlement agreements, despite the fact that UEFA does not control the clubs or their rights to pursue their own commercial interests.


The Daniel Striani case no. 299/15


Two anti-competition complaints were made on behalf of player-agent Daniel Striani by Jean-Louis Dupont in the year 2013. One complaint was filed with the European Commission on 6 May 2013, requesting an investigation into UEFA’s breakeven requirement, and a second complaint filed with the Brussels Court of First Instance, arguing that the Financial Fair Play (FFP), and in particular the breakeven requirement, has limited competition. Dupont stated in the Striani case, that the FFP curtailed investment, lowered the number of transfers, and strengthened the existing market structure. He argued that the FFP was restricting Striani’s ability to supply services in the Union as a result of the relative budgetary limitation placed on football clubs. According to Dupont ́s logic, if clubs are prohibited from spending more than they earned in the previous season, i.e., if they must break even, which is at the heart of the FFP, they will be unable to fully invest in the players market, thereby reducing the total amount of transfers, hence reducing profit opportunities for players' agents.


Moreover, he argued, FFP strengthens the current market structure because the break-even rules do not allow for any exceptions for clubs that are smaller, less established, and compete in less prestigious and lucrative national leagues, that is, leagues outside of Spain, England, Germany, Italy, France, and Portugal, thereby strengthening the current market structure.


Smaller clubs are more prone to suffer damage due to FFP regulations than larger clubs since they are unable to invest in their long-term success because they are barred from doing so. To put it another way, FFP encourages small clubs to remain small while shielding the major established teams from increased competitive pressure. As seen in the Manchester City case, the Court found that Manchester City violated FFP laws but the club was only required to pay a with small fine. As a result of UEFA's violation of EU competition law, Dupont asserted in the Striani case that the organization must demonstrate that FFP serves a legitimate and necessary objective and that they are the least restrictive means of achieving its objectives in accordance with the decisions in Meca-Medina v. Commission and Wouters v. Algemene Raad van de Nederlandse Orde van Advocaten. Taormina points out, that similar to the constitutional strict scrutiny practiced in the United States, this is a form of judicial review. Furthermore, EU courts have been unable to reach a decision on the merits of such lawsuits. He points out, that the European Commission was under no obligation to conduct the inquiry that had been requested. Given the European Commission's previous political support for FFP, which said that the laws are “compatible with the purposes and objectives of EU policy in the sphere of State Aid,” a decision against UEFA would have resulted in political humiliation for the Commission. As a result, the Treaty typically restricts State aid unless justified by considerations of economic growth in general. To guarantee that this restriction is adhered to and that exemptions are implemented consistently throughout the European Union, the European Commission is responsible for ensuring that State assistance adheres to EU regulations. In 2014, the European Commission issued a letter in accordance with Article 7(1) of Commission Regulation 773/2004 announcing its intention to deny the claim due to the continuing litigation in the Brussels court. The European Commission cited three procedural grounds for rejecting the appeal.


To begin, the European Commission determined that Striani lacked standing to file the complaint, since only legal persons can do so if they can establish that they are "directly and adversely impacted" by the alleged violation. Second, the European Commission reasoned that Striani might get sought protection before a national court as a result of his file with the Brussels Court of First Instance. Thirdly, the European Commission asserted that it had received just one complaint on FFP. Dupont responded that the first and third justifications for rejection were unfounded since FFP had a direct effect on player agents through a drop in transfers and that, in response to the third rationale, he filed three further complaints against FFP. However, in October 2014, the European Commission formally dismissed the complaint based solely on its second rationale, concluding that the Brussels Court of First Instance was well-positioned to hear the case and adequately safeguard Striani's rights.


Following the European Commission's judgment, the only available path for a ruling on the merits was the Brussels Court of First Instance. The Brussels Court of First Instance declared itself "incompetent" to deal with the issue in 2015, claiming that it lacked jurisdiction and hence could not proceed. Because UEFA is an association that is registered in the company registry under to Articles 60 and 61 of the Swiss Civil Code, it is recognized as a legal person under Swiss law. It follows that only Swiss courts could hear the claim because persons residing in countries that are parties to the Convention on Jurisdiction, Recognition, and Enforcement of Judgments in Civil and Commercial Matters (the "Lugano Convention") such as Switzerland can only be sued in the courts of the country where they reside. The Brussels Court also determined that it was not feasible to apply Article 5(3) of the Lugano Convention, which allows tort claims to be filed in the country where the injury happened, in this case, Belgium, because the addresses of FFP are only the clubs, and not player agents. Therefore, the loss suffered by Striani was determined to be indirect and too attenuated to qualify for compensation under Article 5(3) of the Lugano Convention. According to the author of this thesis this may demonstrate UEFA's might; courts may be seen avoiding confrontation with the organization.


However, the Brussels Court of First Instance referred the issue of whether the FFP laws breached Articles 101 to the ECJ for a preliminary judgement. Additionally, the court issued an interim injunction halting implementation of the second phase of FFP, which would cut the allowable deficit from €45 million to €30 million, until the ECJ issued a ruling on the filed subject. The court entered the interim order pursuant to Article 31 of the Lugano Convention, which permits the claimant to seek provisional and protective measures that may be available under the law of the state of the present court, i.e., Belgium, even if another state, i.e., Switzerland, would have substantive jurisdiction under the Lugano Convention. The referral to the ECJ was unlikely to result in a decision, since Article 267 of the TFEU provides that a Member State may refer an issue to the ECJ for a preliminary determination only in circumstances where the ECJ's adjudication is required for the presiding court to reach a conclusion. However, the presiding court, the Brussels Court of First Instance, had previously determined that it lacked jurisdiction to provide a ruling on the merits of the case. Thus, a preliminary determination by the ECJ would not have been necessary as required by Article 267 for the presiding court to issue a judgment since the presiding court lacked jurisdiction. As predicted, the ECJ dismissed the reference, noting the Belgian court's lack of international jurisdiction and other considerations that rendered such a preliminary ruling moot. To summarize, the European Commission dismissed the complaint on procedural grounds, and the Court of Justice of the European Union declined to issue a preliminary judgement.


Outcome


No EU court has ruled on whether FFP conforms with Article 101. However, the Court of Arbitration for Sport (CAS) has determined that FFP did not constitute a violation of Article 101. Tom Serby, a Solicitor Advocate, maintains, the FFP Regulations’ break-even criterion has resulted in the formation of a cartel, or an oligopoly, which makes it extremely difficult for teams to compete with current ECA members for success and participation in UEFA tournaments, such as the Champions League and the Europa League. Hence, it is improbable that UEFA could convince the ECJ that the FFP Regulations’ anti-competitive effect, or the cartel effect, is a proportionate response to an inherent requirement for UEFA regulation, namely that “the consequential effects restrictive of competition are inherent in the pursuit of [their] objectives and are proportionate to them.” This, he asserts, is because there are alternative approaches available to address the issue of excessive investment in top European football teams that do not impede competition among football club investors. One such approach would be a hard pay cap, which has the extra benefit of generating fairer competition, resulting in a more engaging spectacle for the consumer and perhaps proving more financially lucrative for the sport as a whole in the long run. As Stephan F. Ross stresses, to establish the legitimacy of the FFP, UEFA would need to demonstrate that there were no other alternatives to excessive spending that were less restrictive of competition.


There is an obvious alternative to the break-even rule’s soft pay restriction which is a hard salary cap, or a limit on the amount of money that a team can spend on players salaries. Hard pay limitations, which are much more prevalent than the break-even criterion, have, according to Ross, a substantially less harmful effect on competitiveness. Indeed, in the majority of professional sports leagues worldwide, competing teams compete against one another to recruit players, subject to league-imposed or mutually agreed upon restrictions.

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