CAS Award in PROFAA v FIFA

On 24 July 2023(1), a panel convened by the Court of Arbitration for Sport in Lausanne (“CAS”) dealt a devastating blow to football agents in their efforts to challenge the legality of FIFA’s Football Agents Regulations (“FFAR”).(2)

An esteemed three-person tribunal convened by CAS, headed by Mr. Romano F. Subiotto KC, and supported by Mr. Olivier Carrard and Mr. Luigi Fumagalli, all experts in sports law, rejected each and every argument advanced by The Professional Football Agents Association (“PROFAA”), a Swiss association whose stated objective is to safeguard and promote the interests of global football agents worldwide.

This resounding victory will be deeply satisfying for all those at FIFA who worked on FFAR, and particularly so for FIFA’s Director of Football Regulatory, Dr Jan Kleiner, and FIFA’s Director of Litigation, Mr Miguel Lietard Fernandez-Palcios, who were part of the team headed by Victoria Wakefield KC defending the challenge brought by PROFAA.

It should also be noted that it was impressively efficient for the CAS panel to produce its Award (which runs to 89 pages) in such a short period, particularly given the wide-ranging nature of the claims it had to grapple with (claims which spanned Swiss law, EU law, Italian law, French law and even arguments relating to the Collective Bargaining Agreement between Major League Soccer and the MLS Players’ Association). PROFAA’s Request for Arbitration was filed on 19 December 2022, the hearing took place from 22 – 24 May 2023 and the Award was provided within 2 months of the hearing.

While this is a big and important victory for FIFA, it is certainly not “home and dry” on this issue yet, not by a long shot. As explained further below, there are plenty of decisions still to be handed down, and, most importantly of all, the European Court of Justice (“ECJ”) still needs to provide its decision on the preliminary ruling request (likely next year).

Background

In January 2020, FIFA announced that the Football Stakeholders Committee and the FIFA Council had unanimously endorsed a series of reform proposals concerning football agents with the aim “to protect the integrity of football and prevent abuses”(3). This followed an extensive consultation process with stakeholders (players, clubs, leagues and member associations), as well as with agents.

FIFA spelled out that its primary objective is to improve transparency, protect player welfare, enhance contractual stability and to raise professional and ethical standards. It made clear that it wished to reduce the abusive and excessive practices that exist in football in connection with certain agents’ practices. FIFA noted that in 2019 agents earned over $650m, four times more than the total sum they generated in 2015.

FFAR were approved by the FIFA Council on 16 December 2022 and published to all on 6 January 2023. They partially entered into force on 9 January 2023 and are due to come into full effect on 1 October 2023. They replace FIFA’s “Regulations on Working with Intermediaries” which have been in place since 2015.

While FFAR has been well received by many sections of the football world, it is fair to say that agents are less than enamoured with the reforms.

Before we proceed to look at the arguments the agents have raised to try and dispute the legality of FFAR, it is worth first summarising the main changes introduced by FFAR:

• most significantly, and controversially, the regulations introduce caps on service fees that can be charged by agents (see Article 15 of FFAR);
• they also limit multiple representation (see Article 12 of FFAR). In doing so they end tripartite representation where agents were able to act for the buyer, seller and the player in a single transaction. Perhaps the most famous example of such an arrangement was when Mino Raiola reportedly earned c£41m on Paul Pogba’s £89m transfer from Juventus to Manchester United in 2016. He apparently received c£23m from Juventus, c£16m from Manchester United and c£2m from Pogba. Such arrangements give rise to obvious potential for conflicts of interest and are not seen in other forms of business. However, they were previously considered permissible in football on the basis of supposed “informed consent” (though many questioned how informed that consent really was). Following FIFA’s radical overhaul of the regulations, tripartite arrangements are permissible no more;
• they reintroduce a mandatory licensing system for agents, a qualitative selection process designed to raise professional standards (see Articles 4 to 9 of FFAR). In making this particular change, FIFA has implicitly accepted that its previous 2015 de-regularisation of the football agent market was a mistake;
• they require disclosure and publication of all agent-related work in transfers, to increase transparency and with the aim of improving the credibility of the transfer system (see Article 19 FFAR); and
• they set up a specific FIFA dispute resolution system to address disputes between agents, players and clubs (see Article 20 FFAR).

FIFA contends its reforms are sensible, reasonable, rational, proportionate and necessary to protect the interests of players and the wider interests of football. It is worth noting here that FIFA’s reforms have not only won support from the wider football world but they have also secured backing from the European Commission, the European Parliament and the Council of Europe.

FFAR are to be implemented by FIFA’s 211 member associations.

Legal challenges brought by agents prior to the CAS Award

Agents have brought legal challenges to FFAR in several countries across Europe:

• In March, a group of agents asked the Swiss Federal Competition Commission to put in place temporary measures preventing the implementation of FFAR. It does not appear that the Commission has yet provided its decision.
• Also in March, two agents in Germany sought an injunction from the Mainz regional court on the basis that FFAR supposedly breaches domestic and EU competition law. The Court denied the injunction but referred the questions of EU competition law to the ECJ(4). It is unclear when the ECJ will provide its ruling, however it normally takes around 18 months to obtain a decision from the ECJ on a preliminary ruling request.
• In the Netherlands, agents asked the Central Netherlands Court (Utrecht) to impose an injunction preventing implementation of FFAR in the Netherlands. The Court rejected this application in May.
• In May, three agents applied to the Regional Court of Dortmund. In contrast to the Courts in Utrecht and Mainz, the Dortmund Court awarded the injunction against FIFA and the German Football Association (DfB). This blocks the implementation of FFAR in Germany pending the ECJ ruling. It is understood that FIFA has appealed this decision to the Higher Regional Court of Dusseldorf, with a decision expected in the upcoming months.
• Here, in the UK, we await the result of the FA Rule K challenge brought by CAA Base, Wasserman, Stellar and ARETÉ to the implementation by the FA of the National Football Agent Regulations relating to English domestic transfers. This decision is expected shortly, before 30 September 2023.

The CAS Award

No doubt those acting for the agents on the FA Rule K challenge will be scrutinising the CAS Award in great detail and seeking to learn from the mistakes made by PROFAA therein.

In the CAS proceedings, it appears PROFAA was determined to raise every legal argument conceivably open to it. While it is easy to say with the benefit of hindsight, in the view of this writer at least, a rather more targeted approach and one which placed greater importance on securing the best possible factual and expert evidence to support the primary arguments in relation to EU competition law, would have improved PROFAA’s prospects (albeit one suspects it would not have changed the ultimate outcome).

The main challenge the agents have been advancing at CAS and in the other jurisdictions referenced above is that Article 15 of FFAR contravenes EU competition law as set out in Article 101 and Article 102 of the Treaty on the Functioning of the European Union (“TFEU”).

This is the real battleground in this dispute and is therefore the focus of the present article.

Article 101(1) TFEU prohibits any agreement or concerted practice between two or more “undertakings” (independent businesses), and any decision by an association of undertakings, that may affect trade between EU member states and that has the object or effect of restricting, preventing or distorting competition.

Article 102 TFEU prohibits dominant companies from abusing their market power in a way that may affect trade between EU member states.

As previously noted, by far and away the most contentious area of FFAR is the service fee caps imposed on agents (Article 15 FFAR). FIFA’s rationale for why this is necessary is as follows.

• FIFA contends that the transfer market is integral to team composition, which, in turn, is a significant factor determining the performance of teams in national and international competitions.
• FIFA has identified a series of market failures in the agent services market which allow agents to exploit their role as intermediaries to their own advantage, thus distorting the operation of the transfer system and, ultimately, team composition and competitive balance.
• FIFA provided data illustrating the market failures, showing, for instance, (i) the increase in the number of international transfers, (ii) the increase in spending on international transfer compensation, (iii) the disproportionate increase in service fees paid to football agents, (iv) conflicts of interest, and (v) abusive, unethical and illegal practices.
• In particular, FIFA argues that Article 15(2) FFAR seeks to ensure the proper functioning of the transfer system (the “overarching objective”) and thereby to protect the integrity of the sport. FIFA also explained that FFAR has the following subsidiary goals: (i) ensuring quality of the service of agents at fair and reasonable service fees that are uniformly applicable, (ii) limiting conflicts of interest and unethical conduct, (iii) improving financial and administrative transparency, (iv) protecting players, (v) enhancing contractual stability between players, coaches and clubs, (vi) preventing abusive, excessive and speculative practices, and (vii) promoting the spirit of solidarity between elite and grassroots football (the “subsidiary goals”).

The parties’ arguments

A central part of PROFAA’s argument was that the imposition of the service fee caps infringe Article 101 TFEU because it establishes a maximum price that equates to horizonal price-fixing, which it claimed is a restriction “by object” under Article 101(1) TFEU and the related case law of the ECJ.

PROFAA also argued that Article 14 FFAR imposing service fee caps (it meant Article 15 FFAR – it appears this was a mistake) constitutes a restriction “by effect” that infringes Article 101(1) TFEU, because the fee caps (i) prevent football agents from substantially competing on price, as they leave no room for differentiation on price, given that the fee caps are low compared to the fees historically charged by agents (particularly those servicing low-profile players and clubs) and (ii) could deter potential newcomers and create barriers to entry.

PROFAA considers that the service fee caps do not pursue a legitimate objective recognised by the ECJ, such as the protection of the integrity of the sport, but instead contended that it appears to protect the economic interests of FIFA acting on behalf of the football clubs.

Moreover, PROFAA submitted that FIFA has abused its dominant position, thereby infringing Article 102 TFEU, on the basis that FIFA holds a collective dominant position in the market for football agent services, and the fee caps introduced by Article 15 FFAR (i) equate to horizontal price-fixing, and (ii) impose an unfair purchase price or trading condition, given that the fee cap bears no relation to the economic value of the services provided by football agents.

FIFA submitted that the FFAR are not restrictive of competition, either “by object” or “by effect”, nor do they constitute an abuse of a dominant position Applying the well-established principles of the so-called “regulatory ancillary restraints” framework set out by the ECJ (first in Wouters (Case C-309/99) and then subsequently in Meca-Medina in a sporting context (Case C-519/04 P)), FIFA contended that the FFAR pursue legitimate objectives, and any associated restrictions on competition are inherent in and proportionate to the pursuit of those objectives (see further below). Accordingly, even if the FFAR are prima facie restrictive of competition, they fall outside the scope of EU competition law.

In response, PROFAA asserted that the “regulatory ancillary restraints” framework does not apply to the present case. Instead, PROFAA invited the CAS panel to assess the compatibility of the contested provisions of the FFAR with EU competition law following the assessment set out by the EU General Court in Piau, particularly the EU General Court’s finding that FIFA’s previous agent regulations did not form part of the so-called “sporting exception” (Case T-193/02, para 105). PROFAA contends that the FFAR consist in the regulation of an economic and contractual activity of a professional sector that does not form part of any competition or sport, but rather is an accessory to the sporting activity.

This is, in the writer’s view, the most interesting legal point in these proceedings and it is worthy of note that the CAS panel (made up of sports law experts) arrived at a very different conclusion to that of the Regional Court in Dortmund.

Before examining the findings of the CAS panel, it is worth recalling that, according to the Meca-Medina test, measures in the form of sporting rules are exempt from competition law if (i) the measures pursue legitimate objectives, (ii) any restrictions on competition that result from such measures are necessarily related to the pursuit of those objectives, and (iii) such restrictive effects on competition are proportionate to the objectives being pursued.

According to the Regional Court in Dortmund, FFAR does not qualify as sporting rules because it relates exclusively to economic activities and the Meca-Medina test cannot be applied. The Regional Court further concluded that, even if the Meca-Medina test was applied, FFAR would fail to fulfil the various criteria of the test. Further, the Regional Court also found that an exception to Article 101 TFEU cannot apply based on the autonomy of sports associations. It found that while associations can regulate their internal affairs, this right does not extend to regulation of third parties outside of the association. We now turn to consider the CAS panel’s findings on each of these points.

Does FIFA enjoy legitimacy to regulate football agent services?

This is a fundamental question of the sport’s governance, namely can FIFA extend its regulatory powers beyond the task of governing the sport of football itself, and cover peripheral economic activities, particularly the market of football agent services?

The CAS panel found that it can because FIFA has “technical” and “democratic” legitimacy to regulate football agent services.(5)

The CAS panel found that “the activity of football agents cannot be properly defined as being only ‘peripheral’ to the world of football and its organisation. Agents, in fact, as far as they represent the interests of clubs and players, directly engage in the organisation and functioning of the market of players’ services, with respect to their employment and transfer – i.e., with respect to one of the core aspects of the entire football system. As a result, FIFA appears to be entitled, in general terms, to adopt rules governing the activity of agents, in the same way as (and to the extent in which) it is entitled to issue regulations concerning the status and transfer of players.”(6)

Do the service fee caps imposed by FFAR comply with EU competition law?

Consideration of the competition law framework for assessing Article 15 FFAR

The CAS panel started its assessment by noting that the actions of FIFA in adopting the FFAR can be, in principle, subject to scrutiny under EU competition law. More specifically, the panel found that:

• FIFA qualifies as an “association of undertakings” and the FFAR can be considered a “decision” under Article 101(1) TFEU;(7) and
• FIFA holds a “collective dominant” position under Article 102 TFEU in the relevant market of football agent services (simply reiterating the EU General Court’s findings in Piau, without examining FIFA’s market position itself).(8)

Contrary to PROFAA’s submissions (and, indeed, the judgment of the Regional Court in Dortmund), the CAS panel agreed with FIFA that the compatibility of Article 15 FFAR with EU competition law is capable of being assessed under the Wouters/Meca-Medina framework.

The CAS panel found that FIFA, in adopting the FFAR, may justifiably be pursuing public interest objectives recognised by the EU legal order, even if the contested provisions of the FFAR are liable to infringe EU competition law, provided the relevant FFAR provisions are appropriate and proportionate to achieve the intended objectives. In stark contrast to the Regional Court in Dortmund, the CAS panel found not only that the Wouters/Meca-Medina framework could be used in the present case to justify conduct which is liable to infringe Article 101 TFEU, but that it can also be used to justify conduct that is liable to infringe Article 102 TFEU.

The CAS panel noted that it is clear from Wouters that the ECJ did not intend to limit the applicability of the regulatory ancillary restraints framework to activities of purely sporting nature.(9)

The CAS panel found that Wouters and Meca-Medina indicate that FIFA enjoys a certain margin of appreciation when regulating economic activities intrinsic to or peripheral to the sport of football.(10)

Assessment of compatibility of Article 15 FFAR with EU competition law

Having established some general principles and summarised the applicable competition law landscape, the panel then proceeded to assess the compatibility of Article 15 FFAR with EU competition law.

Firstly, the CAS panel found that Article 15(2) FFAR does not qualify as a restriction by object under Article 101(1) TFEU.(11) It noted that Article 15(2) does not fix prices in itself – it leaves room for agents to compete beneath the cap. The panel also noted that it gradates the fee cap depending on the client (individual, engaging entity and releasing entity) and the level of annual remuneration of the transferred individual (above or below $200k).

Secondly, the CAS panel found that, despite PROFAA’s unsubstantiated submissions(12), Article 15(2) FFAR is liable to restrict competition “by effect” (although the panel did not conduct a detailed economic assessment of the effects). Accordingly, it found it necessary to assess whether the imposition of the service fee caps could be justified under the Wouters/Meca-Medina framework and therefore fall outside the scope of Article 101(1) TFEU in any event.

Thirdly, the CAS panel found that PROFAA’s contention that Article 15(2) FFAR imposes unfair prices that amount to an abuse of a dominant position contrary to Article 102 TFEU was not made out. PROFAA did not adduce sufficient evidence for the panel to be able to conclude the prices imposed were “unfairly low” and lacked a reasonable relation to the economic value of the service compared with appropriate benchmarks. Remarkably, it seems that PROFAA did not adduce any evidence on the economic value of the services provided by agents, nor did it provide relevant cost information or compare the prices with appropriate benchmarks.

Assessment of Article 15 FFAR under the Wouters/Meca-Medina framework

The CAS panel went on to assess jointly whether Article 15(2) FFAR, to the extent it restricts competition “by effect” under Article 101 TFEU, or it may be considered to amount to an abuse of dominance under Article 102 TFEU, is justified under the Wouters/Meca-Medina framework. Accordingly, it assessed whether Article 15(2) FFAR (i) pursues legitimate objectives that are recognised by the EU legal order and case law of the ECJ, (ii) is appropriate to pursue those objectives and (iii) is proportionate.

Taking each of those three points in turn, the CAS panel considered FIFA’s overarching objective and the subsidiary goals behind Article 15(2) FFAR (see above) to be legitimate.(13)

Further, it found Article 15(2) FFAR to be appropriate to pursue the intended legitimate objectives. It considers that Article 15(2) FFAR shifts the incentives of football agents from a business model largely based on transaction fees, which it found FIFA had sufficiently demonstrated creates a series of market failures (i.e., the Hidden Information Problem, the Gatekeeper Problem and the Hold-up Problem) and other identified issues (e.g., contractual instability, conflicts of interest, abusive, unethical and illegal practices, lack of transparency, exploitation of young players) hindering the effective functioning of the transfer system, to a system where agents provide services at fair and reasonable prices, limiting the reported speculative practices.(14)

The CAS panel also found that Article 15(2) FFAR is suitable:

• to limit conflicts of interest, unethical conduct, and abusive practices, and thus protect players, because it defines the service fee caps by reference to parameters that align the interest of agents with that of their principal (i.e., their clients). For instance, the remuneration of an agent representing an individual is based on a percentage of the individual’s annual remuneration, and the remuneration of an agent representing a releasing entity is based on a percentage of the transfer compensation;
• to promote contractual stability because it provides that the remuneration of agents representing individuals is based on the individual’s annual remuneration, who receive service fees each year for as long as the individual’s contract lasts; and
• to improve financial and administrative transparency because it imposes harmonised service fee caps, which are known to all parties in a transaction.

The only area that FIFA failed to convince the CAS panel was in relation to the subsidiary goal to promote (financial) solidarity between elite and grassroots football, because limiting agents’ service fees does not directly increase the level of payments made pursuant to the training and solidarity mechanisms.

Finally, the CAS panel also found that FIFA had demonstrated that the service fee caps laid down in Article 15(2) FFAR are proportionate to achieve the stated legitimate objectives.  FIFA provided evidence indicating that the average service fees of agents was excessive in relation to the size of the players’ total fixed remuneration in the period from 2015 to 2021. The average service fees appeared to be particularly excessive at the lower end of the salary scale (players making less than EUR 50,000), where agents made 192.5% of the player’s fixed remuneration, but also in the higher tranches of the salary scale (players making over EUR 50,000), where agents made from c20% to c12% of the player’s fixed remuneration.

FIFA provided evidence showing that the service fee cap is proportionate, notably, by comparison to (i) fee caps in other sports (e.g., 3% of the player’s remuneration in the NFL and 4% in the NBA), and (ii) national legislation in Europe setting similar caps on agent services (e.g., 10% of the player’s remuneration in Portugal, 10% of the value of the contract in France, 8% of the player’s remuneration in Greece, or 5% of the first gross annual salary of the player in Switzerland).

PROFAA did not contest FIFA’s evidence and certainly did not prove that FIFA had committed a manifest error of assessment, thus exceeding its margin of discretion.

Whilst not expressly stating as much in its award, the CAS panel effectively found that Article 15(2) FFAR is compatible with EU competition law, in that any restrictive effects or potential abuse of a dominant position arising from the imposition of the service fee caps fall within the scope of the Wouters/Meca-Medina framework – i.e., they are inherent in and proportionate for achieving the legitimate objectives being pursued by FIFA.

Costs

Perhaps the most surprising aspect of the entire Award, given how uniformly it is in FIFA’s favour, was that the CAS panel did not order that PROFAA should bear the full costs of the proceedings and make a contribution to FIFA’s legal costs (as FIFA had requested in the proceedings themselves). Instead, the CAS panel ordered that each party bear its own legal costs. It seems it felt this was justified on the basis of a letter FIFA sent to PROFAA prior to the proceedings commencing – a decision which may now be FIFA’s only regret from this entire matter.

Main take-aways

One suspects that the group of agents bringing the FA Rule K challenge in the UK will make a better fist of the arguments than PROFAA managed.

For a start, one would expect them to do a much better job of producing evidence to support their submissions on restrictions by effect, for example by producing detailed reports showing impact of replacing the fees currently charged in the industry with the fees set out in Article 15 (2) of FFAR.

An area that PROFAA could have pushed harder on, and this writer suspects the lawyers acting for the agents in the Rule K arbitration will press, is in relation to Article 15 (3)-(4) of FFAR, which jointly establish a rebuttable presumption that, where an agent provides “Other Services” (such as legal advice, financial advice, financial planning, scouting, consultancy, management of image rights and negotiating commercial contracts) in the 24 months prior to or following the transaction (noting here that representation agreements are usually for 24 months), such services are presumed to be part of the transaction – in other words, they are equated to “Agent Services” and hence are also subject to the service fee cap.

This is very significant because it means the starting point is, unless the agent can prove otherwise, that essentially all work they do for the player will be caught by the service fee cap. This, at least partially, undermines FIFA’s argument(15) that agents can still charge for “Other Services”.(16)

So, as it stands, FIFA has won another battle, a significant battle, but it has not yet won the war. The football world will be watching with interest the outcome of the FA Rule K proceedings, the decision of the Higher Regional Court of Dusseldorf, and, most significantly, the decision of the ECJ when it makes its preliminary ruling (likely next year).

 

Footnotes

•  

  (1)https://www.tas-cas.org/fileadmin/user_upload/CAS_Award_9370.pdf

  (2)https://digitalhub.fifa.com/m/1e7b741fa0fae779/original/FIFA-Football-Agent-Regulations.pdf

  (3)https://www.fifa.com/about-fifa/organisation/news/reform-proposals-concerning-football-agents-regulations

  (4)A link to the ECJ’s case page can be found here.

  (5)Para 175 CAS Award

  (6)Para 179 CAS Award

  (7)Para 190 and 191 CAS Award

  (8)Para 200 and 201 CAS Award

  (9)Para 215 of CAS Award

  (10)Para 223 and 226 of CAS Award

  (11)Para 237 and 238 of CAS Award

  (12)The burden of proof was on PROFAA. It is clear that the evidence produced by PROFAA was nowhere near sufficient for the CAS panel to assess the merit of PROFAA’s submissions. By way of example, PROFAA’s “Economic Impact Report” contained a) only a brief analysis of the rates established by Article 15 FFAR compared to the service fee rates prevailing in the market b) three case studies looking at the alleged effects of the FFAR on agents operating in India, Southeast Asia and Australia and c) a summary of the results of a survey carried out by PROFAA itself. Para 244 of CAS Award.

  (13)Para 285 – 288 of CAS Award

  (14) Para 290 and 291 of CAS Award

  (15)Para 246 (i) of CAS Award

  (16)Albeit it seems the CAS panel at least was not particularly taken with this line of argument – see paras 312 to 322 of the CAS Award

Contact

stevie.loughrey@onsidelaw.co.uk

jonathan.morgan@onsidelaw.co.uk