Earlier this month, the Court of Justice for the European Union (the “CJEU”), issued its long-awaited judgment in Diarra[1] – a case that targets the core of FIFA’s transfer system. As expected, subject to confirmation by the lower court, the CJEU struck portions of FIFA’s Regulations on the Status and Transfer of Players (the “RSTP”) that (1) penalize clubs for signing players who breached their contract with their old club[2] and (2) prohibit national federations from issuing international transfer certificates (“ITC’s”) allowing breaching players to switch clubs (collectively, the “Contract Rules”).[3]
Diarra challenged these rules under Articles 45 and 101 of the Treaty on the Functioning of the European Union (the “TFEU” or the “EU Treaty”). Article 45 guarantees the free movement of workers between EU member-states.[4] Article 101 forbids regulations or agreements that restrict trade between member-states.[5] Effectively, the CJEU found the Contract Rules defective as to both provisions.
The Contract Rules violate footballers’ freedom of movement under the EU Treaty
The Court held that the Contract Rules restrict the free movement of workers without valid justification. Under TFEU Article 45, “the freedom of movement for workers shall be secured within the [European] Union.”[6] To accomplish this, Article 45 (1) forbids discrimination “based on nationality” between workers from different EU countries[7] and (2) establishes that any citizen of an EU country must be allowed to seek employment in another EU country.[8]
Nonetheless, a regulation that impedes worker movement may still avoid conflict with Article 45. To do so, it must promote a legitimate objective, and any restrictions it creates must be proportional to that objective.[9] The regulation’s “author” carries the burden of establishing that it meets each prong of this test.[10] In Diarra, the CJEU examined the Contract Rules under the test and concluded their means are not proportional to their objective.
The Court found a legitimate sporting objective
On the first prong, FIFA argued the Contract Rules promote three legitimate objectives: (1) contractual stability, (2) maintaining regularity in football competitions, and (3) the protection of workers.[11] Of the three, CJEU only viewed maintaining regularity in football competitions as a legitimate sporting objective.[12]
By “regularity,” the Court appeared to mean aspects of the competition itself – as opposed to the players’ contracts, which are at least a degree removed. So this would encompass, for example, maintaining stability in the composition of the teams.[13] In turn, transfer windows might serve this interest because, without them, squads could change at any minute.[14] From there, the stability and regularity of the competition could be threatened.
Explicitly and implicitly, the CJEU denied FIFA’s other two alleged objectives. As for the protection of workers, it observed that this responsibility does not fall to FIFA, an organization charged with governing football. Further, even if FIFA were responsible, it offered no clear link between the Contract Rules and worker protection.[15]
Implicitly, the CJEU also rejected the idea that, standing alone, contractual stability is one of FIFA’s legitimate objectives. Instead, it held that FIFA only needs contractual stability to the extent this helps secure the regularity of football competitions.[16]
All that said, because FIFA could assert a legitimate sporting objective, the inquiry turned to whether the Contract Rules employ proportional means to achieve it.
The restrictions inherent in the Contract Rules are not proportional
On the proportionality element, the Court cast a suspicious eye toward the Contract Rules. The problem was that they carry significant penalties that apply automatically. For example, RSTP 17(1) imposes monetary penalties on any player found to have terminated his contract without cause.[17] At the same time, it does not provide definite criteria for setting the amount of the fine – only a non-exhaustive list of factors.[18] This leaves FIFA with unrestricted discretion to bury players in fines. The CJEU concluded that went beyond the measures necessary to “ensure regularity in football competitions.”[19]
The Court deemed RSTP 17(2) and (4) similarly flawed. Under 17(2), any club that signs a breaching player becomes jointly and severally liable for the player’s fines. Under 17(4), it is also presumed that the club aided and abetted the breach, for which the club would suffer a two-window ban on registering new players.[20] Again, the automatic nature of the punishments troubled the CJEU – specifically, the way they prevented the FIFA judicial body reviewing the case from determining, based on each case’s facts, whether the new club participated in the breach. To the Court, this was “manifestly” disproportionate to any legitimate objective.[21]
The automatic punishment defect also condemned the ITC Ban.[22] This rule bars national federations from issuing an ITC for a player’s transfer if his old club is claiming he terminated his contract without cause.[23] In other words, the condition for triggering the bar is that the old club alleged a termination without cause. Thus, like RSTP 17(1), (2), and (4), the ITC applies without regard to the facts at issue in each case. So it also failed to satisfy the proportionality element.[24]
Put metaphorically, the CJEU viewed the Contract Rules as giving FIFA an ax to manage an issue that only requires a scalpel. The rules authorize FIFA to impose immediate and arbitrary punishment on players involved in contract disputes. This tool is much more powerful than FIFA needs to preserve regularity in football competitions. Beyond the significant punishments, the rules’ only applications are broad and general and, thus, could sweep away conduct that is not otherwise problematic. The vast discretion they give FIFA also means its decisions cannot be challenged. Taken together, these powers are dictatorial – not proportional to the limited issue of preserving regularity in competitions.
The Contract Rules restrict competition, in violation of Article 101(1)
Article 101 bars regulations or agreements that “affect trade” between member-states and “have as their object or effect the prevention, restriction or distortion of competition within the internal [EU] market.”[25]There is an exception, which allows regulations or agreements that meet the above description to avoid 101 liability if they improve efficiency in specific areas. This applies to regulations or agreements that (1) improve production or distribution of goods or (2) “promote technical or economic progress,” while leaving consumers with a “fair share” of the benefits. At the same time, the regulation or agreement cannot use the exception if it (1) includes restrictions beyond those necessary to achieve either of the above goals or (2) allows any of the actors concerned to eliminate competition for the goods in question.[26]
The CJEU did not address the “Specificity of Sport” doctrine
As an initial matter, much has been written about whether the CJEU and Advocate General Maciej Szpunar[27] applied the correct framework to the 101(1) analysis. The most common criticism is that both disregarded a doctrine often called the “specificity of sport.” This holds that when an agreement or regulation addresses purely sporting issues, courts should determine its fate under a permissive balancing test – like the one that controls Article 45. Only if the regulation is found disproportionate under that test would the court consider whether it is a restriction by object or effect.[28]
However valid these concerns are, this article will only discuss the reasoning the CJEU used in the Diarra opinion. And the Court did not directly address the “specificity of sport” doctrine.
The restriction of competition is the “object” of the Contract Rules
The Court evaluated Article 101(1) through a two-step inquiry, grounded in the rule’s text. The first question is whether the regulation’s “object” is the restriction of competition. If it is, the regulation violates Article 101(1) and only the exceptions in 101(3) can save it. [29] Second, if the regulation is not a restriction “by object,” the court asks whether it has the effect of restricting competition. If the answer is “yes,” the regulation can still comply with Article 101, provided (1) it pursues legitimate sporting objectives, (2) any restrictive effects are inherent in pursuing those objectives, and (3) the severity of the restrictions is proportionate to the value of the objectives sought.[30]
As to the first step, the Diarra Court framed the issue to be whether “by [their] nature,” the Contract Rules inflict enough harm on competition to conclude their object is to restrict it.[31] Here, the subjective intent behind the rules was not determinative.[32] Instead, the Court examined the totality of the circumstances, including the rules’ content, the economic and legal context surrounding them, and the goals they seek to accomplish.[33]
The CJEU concluded that the penalties threatened by the Contract Rules are so broad and painful that, effectively, they suppress the market for professional footballers under contract.[34] From this, the impact is significant. Professional footballers are clubs’ most important resources, and at a given time, all but a small portion are under contract. So because the Contract Rules prevent clubs from competing to recruit these players, they eliminate a large swath of the player market.[35]
To the CJEU, this meant that, by their nature, the rules inflict serious damage on competition between football clubs. So they are restrictions “by object.”[36]
Most likely, the exception in Article 101(3) does not apply to the Contract Rules
Once the CJEU declared the Contract Rules restrictions “by object,” it became unnecessary to judge whether they had the effect of restricting competition. But the rules can still survive if they fit the exception in Article 101(3).
This requires a party to demonstrate four essential elements. First, the regulation or agreement in question must “lead to efficiency gains.” These can be through improving production or distribution of goods or services, or promoting technical or economic progress. Second, “users” must receive a “fair share” of any benefit from the efficiency gains. Third, the regulation must not impose any restrictions beyond those necessary to achieve the efficiency gains. Fourth, the regulation must not allow “participating undertakings” to eliminate competition over a “substantial part” of the market for the goods or services in question.[37]
Here, technically, the CJEU left the decision to the Belgian court.[38] However, it seemed to believe the Contract Rules cannot satisfy the third element.[39] And this would foreclose the exception.
Failure to meet the third condition would align with the Court’s view on the Contract Rules. That is, given how the rules are not proportional to the objectives sought, it is likely they do more than necessary to achieve efficiency gains.
Further, even if the Contract Rules did earn the exception, they would still fail due to their conflict with Article 45. So any discussion of the exception’s elements would be academic.
Conclusion
Technically, the CJEU has only issued a preliminary ruling. Diarra’s case now returns to the lower court in Belgium to confirm the decision and issue final judgment. Apparently, other preliminary rulings require more substantive work for the lower courts. But in Diarra, the CJEU wrote with more precision than normal and thus, decided most of the issues without needing lower court assistance. So while not yet official, most likely, the CJEU’s conclusions in Diarra will control soon enough.
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[1] Technically, the case’s title is FIFA v. BZ. “BZ” is a pseudonym for Lassana Diarra, a relatively well-known footballer. So because “BZ” protects no one’s anonymity and using the real person, Diarra, gives the case more personality, this article will refer to it as Diarra.
[2] FIFA Regulations on Status and Transfer of Players, Articles 17(1), (2), (4)
[3] Id. at Art. 9(1), Annex 3, Sect. 8(2)(7); Hereinafter, this shall be referred to as the “ITC Ban.”
[4] Treaty on the Functioning of the European Union, Article 45(1)-(3)
[5] Id. at Art. 101(1)
[6] Id. at Art. 45(2)
[7] Id. at Art. 45(2)
[8] Id. at Art. 45(3)
[9] Case C-650/22, FIFA v. BZ, ECLI:EU:C:2024:824, ¶95; See also Case C-519/04 P, Meca-Medina and Majcen v. Commission of European Communities, EU:C:2006:492, ¶42
[10] Case C-650/22, FIFA v. BZ, ECLI:EU:C:2024:824, ¶96
[11] Id. at ¶98
[12] Id. at ¶100
[13] Id. at ¶102, citing Case C-680/22, Royal Antwerp v. URBSFA, EU:C:2023:1010, ¶61
[14] Case C-650/22, FIFA v. BZ, ECLI:EU:C:2024:824, ¶¶100, 102
[15] Id. at ¶99
[16] Id. at ¶102
[17] Id. at ¶105, citing FIFA RSTP, Art. 17(1)
[18] Case C-650/22, FIFA v. BZ, ECLI:EU:C:2024:824, ¶¶105-107
[19] Id. at ¶106
[20] Id. at ¶¶108-109, citing FIFA RSTP, Art.’s 17(2), (4)
[21] Case C-650/22, FIFA v. BZ, ECLI:EU:C:2024:824, ¶110
[22] See FIFA RSTP, Art. 9(1), Annex 3, Sect. 8(2)(7)
[23]Id. at ¶112, citing FIFA RSTP, Art. 8(2)(7), Annex 3
[24] Case C-650/22, FIFA v. BZ, ECLI:EU:C:2024:824, ¶113
[25] TFEU, Art. 101(1)
[26] TFEU, Art. 101(3)
[27] In many cases, prior to the Court ruling, one of the CJEU’s advocates general issues a preliminary opinion. While not binding, this opinion can be influential. Here, Advocate General Maciej Szpunar submitted his opinion on April 30, 2024 – approximately five months before the CJEU’s ruling. See Opinion of Advocate General Szpunar in FIFA v. BZ (C-650/22, ECLI:EU:C:2024:824), April 30, 2024, ¶¶51, 57, 59
[28] See e.g., Stephen Weatherill, Changing the law without admitting it: the Court’s three rulings of 21 December 2023 applied twice in January 2024, Kluwer Competition Law Blog, February 7, 2024,Changing the law without admitting it: The Court’s three rulings of 21 December 2023 applied twice in January 2024 – Kluwer Competition Law Blog
[29] Case C-650/22, FIFA v. BZ, ECLI:EU:C:2024:824, ¶¶125, 151
[30] Id. at ¶149
[31] Id. at ¶¶127, 130
[32] Id. at ¶132
[33] Id. at ¶¶130-133
[34] Id. at ¶¶146-148
[35] Id.
[36] Id. at ¶148
[37] Id. at ¶¶154-155
[38] Id. at ¶¶156-157
[39] Id. at ¶157
Terry Brennan Law 
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