The legally ambiguous status of ‘Financial Fair Play’

Stephen Weatherill, University of Oxford

The question whether UEFA’s Financial Fair Play rules (‘FFP’) are compatible with EU law is of interest on its own terms. But not just that: it also falls within a wider inquiry into the extent to which the autonomy of governance in sport should be respected by EU law. This inquiry has become more sharply focused since the entry into force of the Treaty of Lisbon in 2009, since for the first time it has provided us with guidance in the Treaty as to the nature of EU law’s relationship with (and respect for) sports governance. My basic argument presented here is that FFP is legally fragile – it is certainly vulnerable to attack under EU law. But it is not automatically unlawful – there is room under EU law to defend it. Much will depend on the extent to which the institutions of the EU – the Commission and ultimately the Court of Justice – are prepared to show deference in their interpretation and application of EU law to the claims of sporting autonomy.

FFP: Effects and objects

Under FFP clubs are expected to ‘break even’ – according to a complicated set of criteria, the evasion of which will certainly keep lawyers and accountants in clover for some time to come. So, for example, Annex X seeks to exercise control over transactions above or below ‘fair value’ – but there are obvious objections to such quantification.

But why? What are the objectives of FFP? Article 2(2) FFP states that the Regulations aim to achieve financial fair play in UEFA club competitions and in particular: a) to improve the economic and financial capability of the clubs, increasing their transparency and credibility; b) to place the necessary importance on the protection of creditors and to ensure that clubs settle their liabilities with players, social/tax authorities and other clubs punctually; c) to introduce more discipline and rationality in club football finances; d) to encourage clubs to operate on the basis of their own revenues; e) to encourage responsible spending for the long-term benefit of football; f) to protect the long-term viability and sustainability of European club football.

FFP seems to me to be a horizontal agreement between suppliers (of sports services: clubs) which includes commitments to restrain spending (inter alia on players’ wages). It is also strengthened by vertical restraints (licensing requirements) enforced by UEFA, the governing body. It is a restriction on competition (to acquire players’ services) which has the effect (inter alia) of depressing the levels of remuneration payable to players. That is the province of Article 101 TFEU, which is the EU’s principal Treaty provision designed to control restrictive practices and anti-competitive arrangements.

I am here looking at the effects of FFP, not its objectives. But – rather to my surprise, given the usual agility of sports bodies in presenting their arrangements in the most (improbably) high-minded guise – UEFA’s own website (though not the FFP Regulations themselves) identify as one of the principal objectives to decrease pressure on salaries and transfer fees and limit inflationary effect (http://www.uefa.com/uefa/footballfirst/protectingthegame/financialfairplay/index.html, last accessed 12 May 2013). This seems to be a rather frank admission of anti-competitive intent.

FFP: within the scope of EU law but not necessarily condemned by it

So FFP falls within the scope of Article 101 TFEU. But there is in principle room for finding that it does not violate Article 101 TFEU.

In Case C-67/96 Albany International the Court was asked to consider the application of (what is now) Article 101 TFEU to collective agreements between organisations representing employers and workers. Had the Court opened up such agreements to the full blast of EU competition law, it would have unleashed a troubling dynamic in labour market regulation. But it did not. Instead the Court accepted that restrictions of competition are inherent in such collective agreements, but added that the social policy objectives pursued by such agreements would be seriously undermined if management and labour were subject to Article 101 TFEU when seeking jointly to adopt measures to improve conditions of work and employment. It therefore decided to place such agreements beyond the reach of Article 101 TFEU. So EU competition law is interpreted with contextual nuance. But both key elements – collective action and improvement of conditions of work – are missing from FFP. So the ‘Albany exception’ cannot help UEFA.

Nevertheless, the receptivity of EU competition law to contextual nuance is of broader application. EU competition law accepts that effects that are restrictive of competition may not lead to condemnation pursuant to Article 101 where those effects are inherent in the pursuit of recognised/ justified objectives. The landmark ruling is Case C-309/99 J.C.J. Wouters, J.W. Savelbergh, Price Waterhouse Belastingadviseurs BV v Algemene Raad van de Nederlandse Orde van Advocaten. This has nothing at all to do with sport. Wouters concerned rules prohibiting multi-disciplinary partnerships between members of the Bar and accountants. But, crucially, the Court ruled that not every agreement which restricts the freedom of action of the parties is necessarily condemned by the prohibition laid down in Article 101, because account must be taken of its objectives. And in Wouters the Court allowed assessment of the claimed need to supervise professional ethics and ensure the sound administration of justice in the light of the consequential effects restrictive of competition. This is a rough-edged ‘exception’ and one that has some competition lawyers fearful that the orthodoxy of their craft is thereby opened up to – even subordinated to – wider social/cultural policies that they believe should be excluded from competition law and shaped instead through other routes and instruments. Be that as it may, the ‘Wouters principle’ is now well established in EU competition law, and in the particular case of sport it invites an argument that the overall context in which sports regulation occurs, built around pursuit of a broad objective of fair competition, produces effects which though apparently restrictive of competition are nonetheless inherent in the pursuit of those objectives and therefore permitted. And the Wouters approach has been applied to sporting practices. In Case C-519/04P Meca-Medina & Majcen v Commission the Court took the view that anti-doping rules be so considered, citing Wouters (at para 42). They were not immune from review in the light of EU competition law – but a contextual assessment found that their general objective was to combat doping in order for competitive sport to be conducted fairly and safely and ethically, and sanctions that affected athletes’ freedom of action had to be considered in principle inherent in the anti-doping rules as means of enforcement.

So what was at stake was a restriction of competition but not one incompatible with EU law, because justified by a legitimate objective, inherent in the organisation and proper conduct of competitive sport. This would not apply only if (as was not shown) the rules went beyond what is necessary to ensure the proper conduct of competitive sport (e.g. by imposing excessively severe penalties).

What is at stake here is the intellectual and strategic heart of ‘EU sports law’: the assessment of the strength of claims advanced by governing bodies that ‘sport is special’ to the extent that it deserves an interpretation of legal rules that is different from that applied to ‘normal’ industries. There is no general exclusion of EU law – and in my view, given the vast economic significance of modern professional sport, any such claim advanced by sporting bodies is strategically understandable but intellectually feeble. Instead EU law proceeds on the basis of an interpretation that is respectful of ‘sporting autonomy’, under a case-by-case examination. Sometimes the Court and/or the Commission is persuaded that sport is special and that therefore practices may be pursued which would be unlawful in non-sporting contexts (eg Case 36/74 Walrave and Koch v Union Cycliste Internationale [1974] ECR 1405; COMP 37.806 ENIC/ UEFA, IP/02/942, 27 June 2002). Sometimes not (Case C-103/88 Fratelli Costanzo v Commune di Milano [1989] ECR 1839; Decision 2000/12 1998 Football World Cup OJ 2000 L5/55). Sometimes it is persuaded in principle that sport is special but not when it reviews the detailed arrangements (Case C-415/93 Bosman [1995] ECR I-4921: yes to a transfer system, no to this transfer system).

So can FFP be ‘saved’ through this route?

FFP is not a rule that is necessary for the conduct of sporting activity or of itself an inherent ingredient of sport. That would be to go too far. However, Wouters and Meca-Medina teach us that the argument that UEFA should advance is that FFP’s effects are restrictive of competition (as they surely are), but that these are inherent in the pursuit of legitimate objectives – not just to decrease pressure on salaries and transfer fees and limit inflationary effect (as UEFA’s website rather artlessly confesses) but also (as Article 2(2) FFP claims) to improve the economic and financial capability of the clubs, to introduce more discipline and rationality in club football finances, to encourage clubs to operate on the basis of their own revenues, to encourage responsible spending for the long-term benefit of football, etc.

There is at least soft evidence that the European Commission is receptive to such an argument. In answer to a Parliamentary Question in August 2010 (E-4628/10) M. Barnier declared that ‘The Commission would also like to draw the Honourable Member’s attention to self-regulatory measures taken by the football sector to reduce the overall level of debt of clubs. On 27 May 2010, UEFA’s Executive Committee approved the Financial Fair Play Regulations with the aim of ensuring the long-term financial stability of European football clubs. The Commission considers that the rationale of UEFA’s plan seems to be in accordance with one of the objectives of the EU’s action in the field of sport, namely with the promotion of fairness in sporting competitions (Article 165 TFEU). The Commission also notes that any measure taken in this framework has to respect the EU’s Internal Market and competition rules’.

This, though doubtless welcome to UEFA, is not legally decisive. Only the Court can ultimately provide an authoritative interpretation of EU law. It is, however, interesting to see the Lisbon Treaty’s embrace of sport as an EU competence used to frame the explanation supplied by M. Barnier. Since 2009 relevant documentation on EU sports policy has tended to draw on the Lisbon Treaty (as well as the Commission’s 2007 White Paper and its 2011 Communication). The problem here is that it is, however, vacuous. In what sense is ‘fairness’ really at stake? Presumably this is an allusion to FFP’s suggested aim to rein in clubs that are dependent on ‘sugar daddies’ – to instead protect competition based on the break-even requirement. One might question whose ‘fairness’ is being protected here – it seems to be that of the clubs with access to most resources through their football activities at the expense of those seeking new routes, and it enshrines the advantages of those clubs that have climbed the ladder thanks to sugar daddies in the past while refusing access to the ladder to new entrants. Put another way, FFP does not contribute to competitive balance (and, to be clear, it does not claim to) – it may even turn out to be a mechanism that stabilises competitive imbalance.

Perhaps the best argument in favour of FFP is that it is a response to the over-indebtedness of clubs. In a ‘normal’ industry this would be disciplined by bankruptcy. In football we cannot simply send famous clubs into oblivion. Sport is special – and this, arguably, justifies stronger ex ante controls over financial irresponsibility than would be tolerated in ‘normal’ industries. Perhaps there is enough here to allow UEFA and the clubs to argue that FFP’s effects restrictive of competition (in the market for players) are inherent in the pursuit of legitimate objectives associated with the long-term stabilisation of an overspending industry. It is the self-serving argument that is normally anathema to competition lawyers – but maybe sport is ‘special’. There are, however, several objections. Is FFP really apt to achieve this end? And aren’t there less restrictive means to achieve it, such as allowing ‘new’ clubs to take the place of but share the name and fanbase of bankrupt clubs, subject to penalties such as points deduction and/or relegation?

Whether any party has a sufficient incentive to challenge FFP raises another set of questions again, of course. The Commission is the most appropriate actor – but the clubs and UEFA have shrewdly stayed close to the Commission in the negotiation of FFP. Private challenge is always possible despite informal Commission approval, as Bosman (the case) reminds us, even if the eventual outcome may not be happy, as Bosman (the man) reminds us.

How wide is (should be) the sporting ‘margin of appreciation’?

I don’t really believe on balance that FFP is compatible with Article 101 TFEU. I think it is at heart a horizontal cost-cutting agreement between competitors (in the market for players) and its main purpose is to increase profits for owners. But I do suspect that it is not so outrageous that, if tested, it might survive scrutiny in the light of Article 101 TFEU on the basis that a degree of autonomy should be allowed to sports bodies framing their own peculiar governance arrangements.

If I were asked to advise UEFA – which is hardly likely – I would structure a defence of FFP in the following terms:

EU competition law – Wouters – accepts that effects that are restrictive of competition may not lead to condemnation pursuant to Article 101 where those effects are inherent in the pursuit of recognised/ justified objectives. FFP is designed to introduce more discipline and rationality in club football finances, and in particular to stop clubs spending money they do not have, for the long-term benefit of football. The more concrete the evidence on current financial irrationality and the consequent risk to the integrity of the competition, the better.

Could these objectives be achieved by other methods that are less restrictive of competition? One could envisage other routes to the same destination, but (UEFA should argue) it is not at all demonstrable that they would be as effective as FFP, or effective at all. Sport should be allowed room to make these difficult choices.

This is the core of UEFA’s best approach to achieving autonomy – not by denying the application of EU law in principle, but by urging that its interpretation and application be sensitive to sport’s special characteristics and to the expertise of sports governing bodies in addressing them. This is a question of legal competence – until the entry into force of the Lisbon Treaty nothing in the EU Treaties provided guidance on how sport should be dealt with under EU law (most obviously, free movement and competition law) and even after Lisbon, since 2009, there is no systematic reconciliation of competing interests to be found. It is also a question of basic institutional expertise – what do the officials of the Commission and judges of the Court know of football? So it is right that a high degree of deference be shown to the choices made by governing bodies. Put another way, EU law is readily applicable but finding that it has been violated should be a conclusion reached (by the Court or Commission) only in extreme cases.

In fact, UEFA should be glad that this is largely an accurate description of the case law, as well as a normative claim in favour of restraint by the Court and Commission. Meca-Medina was greeted with outrage by sports governing bodies – but it fits exactly this permissive model, because anti-doping was not treated as anti-competitive and would violate EU law only in extreme circumstances. Bosman did not at all outlaw the transfer system, only the extreme version then in force. A violation of EU law was found in Case C-49/07 v Motosykletistiki Omospondia Ellados NPID (MOTOE) v Elliniko Dimosio but surely, given the conflict of interest between regulatory function and commercial motivation in that case, that was no surprise. UEFA should also argue that the embrace of the ‘specific nature of sport’ by the Lisbon Treaty (now found in Article 165 TFEU) strengthens the respect that should be accorded to sporting practices under EU law (I do not believe this – I think Article 165 simply reflects existing judicial practice – but for UEFA it is an argument worth making).

The best bet for defending FFP lies in acceptance that EU law applies but that it is an attempt to make arrangements that are required in sport to achieve financial stability ex ante where ex post control – bankruptcy of offending clubs – is unacceptable/unworkable. And that argument needs to be supported by the claim that sporting bodies should be allowed space to make these difficult choices.