Football's transfer system is about to change forever. Everything and nothing will change

[SydneyChelsea]

You all remember Lassana Diarra, right?

I remember being so excited when he signed, with both a physical and playing resemblance to Claude Makelele. I was so sure he would be a perfect replacement and go on to make an indelible mark on Chelsea. As fate would have it, he might well have.

In 2014, Diarra fell out with his manager at Lokomotive Moscow and as a result, his contract was terminated by the club. Diarra lost his original case to FIFA and CAS in 2016, who upheld Lokomotiv Moscow's case stating the club acted within FIFA's rules, suspending Diarra from Russian football for 15 months, and fining him some part of the value of his contract (€10.5m).

When Diarra attempted to join Belgium's Charleroi in 2016, FIFA refused to issue him with an International Transfer Certificate (ITC) which clears him to transfer and be registered in a different association. In doing so, they confirmed Charleroi that it would be jointly and severally liable for the money Diarra owed to Lokomotiv Moscow as per FIFA rules for transfers.

The CJEU has ruled that this FIFA rule, and some of the processes involved in how FIFA arbitrate contractual disputes between player and clubs, breach EU employment and competition law. The ruling means that most of FIFA's Regulations on the Status and Transfer of Players are null and void in the EU.
 

What actually is a transfer/transfer fee?
According to the current FIFA transfer system, if you sign a player who owes a debt to their current club, you inherit that debt. You might even recall that Chelsea relied on these rules when it pursued Juventus and Livorno for transfer fees, after they signed Adrian Mutu before he had paid the money he owed Chelsea.

A player who moves to another club breaks their contract, and 'owes' their parent club money; under the current FIFA rules, any club that signs that player is also liable for the owed money. This is what a transfer fee is. The nature of the market is such that clubs will often pay more than just the book value of contract to secure player, but in effect a transfer fee is just an agreed amount to stop a club taking legal action against another club or player.
 

The decision and impact
For now, nothing will change.

FIFA has implemented interim rules which are subject to challenge and consultation. There is no stated time-frame for permanent change, but it will need to be soon.

The main points are that CJEU ruled in favour of Diarra/Charleroi's argument that clubs should not be held jointly and severally liable for a player breaking their contract, and that FIFA's requirement for an ITC unjustly impinged on the movement of employees within the EU. While this means that a player who unjustly terminates a contract can incur a huge personal debt to the club, the club actually has to take legal proceedings against them to recover it, and they are free to work for another club in the meantime. In effect this would limit the maximum transfer fee to the value of the player's contract remaining, since the buying club can simply consent to reimbursing the player for buying out his contract.

CJEU also found that FIFA's entire system for arbitrating contractual and transfer disputes as procedurally unfair, given that players had to prove just cause and the proceedings took months if not years, all the while the player is barred from playing. This was also found to violate EU employment rights.

What probably hasn't been reported well however is just how far CJEU went in criticising FIFA's current system. CJEU also questioned FIFA's argument that the Rules are there to ensure 'contractual stability'. While it accepted that FIFA has an important role to enforce contractual stability to ensure players are paid fairly and that football competitions have some stability to ensure integrity, CJEU believes that this is only valid for a current season and that FIFA's rules go too far in allowing clubs to enforce multi-year contracts, in a manner that is also inconsistent with EU employee rights.

Although it was not a key question in the actual Diarra case, it was an opinion expressed by CJEU, and therefore players and Fifapro could rely on it in a challenge. This is potentially the biggest threat to the current transfer system. In the absolute extreme, players could only be required to fulfill a contract for a whole season but would be free to transfer to any other club in the off-season, while the club must fulfill their end of the contract year on year. We could sign Cole Palmer and by season's end he could be off to Real Madrid for the remaining value of his contract.
 

The impact on Chelsea
At long last and as we all predicted on the old CSR and TSE, Diarra's finally made his mark on Chelsea.

Any club looking to wheel and deal players is likely going to be severely impacted by the new rules. Contracts will ensure that clubs pay players, but will no longer restrict the movement of players and will no longer give the power to clubs to dissuade players seeking a transfer. Transfer fees will be capped to the value of a player's contract, making FFP/PSR profit much harder indeed, but academy players on long contracts will be even more valuable as 'pure profit'. Clubs will need to compete on wages rather than rely on transfer fees to secure their targets, which means youth scouting and academy prospects are going to be even more vital. Transfers, as a source of revenue, are likely to be a thing of the past, which seems like it will seriously impact Clearlake's strategies.

'Bomb squads' will also be a thing of the past; any attempt by a club to force a player's transfer or impinge on their right to work could lead to 'just cause' and allow the player to walk away from their contract for free. CJEU believes that FIFA has too heavily favoured clubs in contractual disputes and the likely new rules will mean situations like Sterling/Chilwell/Chalobah allow players to simply terminate their contract and move elsewhere.

The current strategy of handing out long-term contracts actually might turn out to be a popular idea, since the only way to secure a player value is to ensure they have lots of years left to run on their contract. However, players will be freer to walk away, which means our lower wages/incentive scheme will be easy to exploit by buying clubs, and managers/clubs won't be able to simply not play them for contractual reasons as this is likely to give them just cause to terminate a contract.

In short, the end is nigh for the current transfer market. The new one will look very much like the old one, only with more power to the players, less power to the clubs, Clearlake needing to take stock of its investment strategy, and all because of Chelsea's 'little' Lassana Diarra.

 

[SydneyChelsea]

I forgot to add one major point:

CJEU also criticised the way that FIFA and CAS calculate the compensation payable for breach of contract. The gist of their judgement is that FIFA/CAS can no longer solely rely on the wage value of the contract and that this makes for an illegal restriction in effect. For example, if a player breaches their 5m/year contract with 2 years to run, historically FIFA/CAS have calculated the compensation payable by the player to be around 10m.

CJEU are saying that calculation is too biased in favour of clubs to meet EU legal standards and needs to be changed, and their view is that compensation to clubs for release should be significantly less.

CJEU has also commented that FIFA/CAS's use of sporting restrictions, eg suspension if a player breaks contract to join another club, is illegal in the EU.

This means that transfer fees are likely to disappear entirely. Players will be able to end their contract for a token, arbitrated fee, and a buying club can recompense the player for doing so.

 

[PloKoon13]

If it means we'll never have to see another of those tedious and meaningless 'net spend' graphs I'm all for it. 

 

[OTL]

How does this sit with our current status of not being in the EU?

And could this encourage European Clubs to revisit a Super league outside of FIFA/UEFA?  

 

[The Rising Sun]

I forgot to add one major point:

CJEU also criticised the way that FIFA and CAS calculate the compensation payable for breach of contract. The gist of their judgement is that FIFA/CAS can no longer solely rely on the wage value of the contract and that this makes for an illegal restriction in effect. For example, if a player breaches their 5m/year contract with 2 years to run, historically FIFA/CAS have calculated the compensation payable by the player to be around 10m.

CJEU are saying that calculation is too biased in favour of clubs to meet EU legal standards and needs to be changed, and their view is that compensation to clubs for release should be significantly less.

CJEU has also commented that FIFA/CAS's use of sporting restrictions, eg suspension if a player breaks contract to join another club, is illegal in the EU.

This means that transfer fees are likely to disappear entirely. Players will be able to end their contract for a token, arbitrated fee, and a buying club can recompense the player for doing so.

Thanks for this information mate.

Does the likely disappearance of transfer fees mean that our "plan" to buy young players and then sell them on for profit will no longer be possible?

 

[SydneyChelsea]

Thanks for this information mate.

Does the likely disappearance of transfer fees mean that our "plan" to buy young players and then sell them on for profit will no longer be possible?

To an extent, yes. It depends on how strongly FIFPro (players union) pursues FIFA in the EU courts. CJEU's decision is the latest in a long line of EU decisions that affirms the status of players as employees of clubs, not tradeable assets.

FIFA could yet have one rule for EU and one rule for everyone else, but in practice there are no clubs outside Europe - except Saudi - capable of paying mega transfer fees.

The key opinion of CJEU here is that contracts are necessary to retain players during a season, but shouldn't restrict the right of players to move between clubs between seasons. It ruled that the imposition of transfer fees is a restriction in terms of EU competition law. 

Practically speaking I think that means transfer fees will be effectively capped at the remaining value on a player's contract, and wages will be the new incentiviser.

 

[The Rising Sun]

To an extent, yes. It depends on how strongly FIFPro (players union) pursues FIFA in the EU courts. CJEU's decision is the latest in a long line of EU decisions that affirms the status of players as employees of clubs, not tradeable assets.

FIFA could yet have one rule for EU and one rule for everyone else, but in practice there are no clubs outside Europe - except Saudi - capable of paying mega transfer fees.

The key opinion of CJEU here is that contracts are necessary to retain players during a season, but shouldn't restrict the right of players to move between clubs between seasons. It ruled that the imposition of transfer fees is a restriction in terms of EU competition law. 

Practically speaking I think that means transfer fees will be effectively capped at the remaining value on a player's contract, and wages will be the new incentiviser.

Thanks for this information

 

[forbzy]

To an extent, yes. It depends on how strongly FIFPro (players union) pursues FIFA in the EU courts. CJEU's decision is the latest in a long line of EU decisions that affirms the status of players as employees of clubs, not tradeable assets.

FIFA could yet have one rule for EU and one rule for everyone else, but in practice there are no clubs outside Europe - except Saudi - capable of paying mega transfer fees.

The key opinion of CJEU here is that contracts are necessary to retain players during a season, but shouldn't restrict the right of players to move between clubs between seasons. It ruled that the imposition of transfer fees is a restriction in terms of EU competition law. 

Practically speaking I think that means transfer fees will be effectively capped at the remaining value on a player's contract, and wages will be the new incentiviser.

Great information. Thanks for sharing. I suppose if anything positive comes out of this, it means that Clearlake will have to change their strategy. Or perhaps they will realise that their money-making scheme is no longer valid and look for somebody to buy them out?

 

[SydneyChelsea]

So being Aussie, I completely forgot one major, crucial detail to the above - Brexit!

Since CJEU's decision only applies to EU member states, FIFA must decide whether it will reform the transfer system as a whole or have a two-tier system - one set of rules for the EU, and one for the rest of the world.

In the most extreme, oversimplified interpretation, CJEU's decision means that transfer fees will no longer exist between EU clubs. A two-tier system would mean that EU clubs would not be able to charge transfer fees for movement between themselves, but non-EU clubs will.

The highest-spending transfer markets in the world at present are England and Saudi Arabia. Both are non-EU. If FIFA were to adopt a two-tier system, it would significantly advantage English and Saudi clubs because:

• English/Saudi clubs could pay transfer fees to EU clubs, meaning selling England/Saudi will remain the preferred option for financial reasons
  
• English/Saudi clubs could still require EU clubs to pay them transfer fees, protecting their assets
  

This sets up a tricky political situation for FIFA (and UEFA) to navigate, because while the EU is the spiritual and cultural home of football, the economy of football ultimately relies on England, Saudi Arabia, and the paying fans of Asia and America. England has already thrown its support behind Saudi Arabia and both AFC/CONCACAF in general, so they will make a formidable voting bloc if they decide to protect their own interests.

A useful comparison would be cricket, where despite the ICC having a global remit, nothing is done in the game without the consent of India, the game's financial powerhouse.

Since Brexit means that none of the above applies to clubs in the UK, I am assuming England would be excluded. However, since CJEU's decision relates to EU competition law, it is possible that the same principles apply in English law and Article 17 of FIFA also contravenes English law. That is yet to be decided, and may yet guide England's path. FIFAPro have already stated their intention to pursue this in other jurisdictions if FIFA do not make a suitable amendment.

From a Chelsea perspective, this presents us with a all-or-nothing situation. A unified FIFA rule will utterly torpedo the Clearlake trading model. A two-tier rule would land Clearlake a golden goose.

 

[OTL]

I'm thinking a Super League could have a part to play in the future and the current Champions League could expand to say 48 making it similar to a Super league in all but name.

 

[SydneyChelsea]

Yeah, I think. Most people seem to think ESL will win its EU court case on competition grounds.

These cases seem to confirm that any obligation to FIFA is due to tradition rather than legal grounds. IFAB are the custodians of the game in that they define the rules of the actual sport, but FIFA is just a corporate bureaucracy that decided to become the sport's administrator and final arbiter.

There doesn't seem to be any legal reason why we can't have two competing "UEFAs", with different competition rules.

Given FIFA/UEFA's indifference to fans and players and incompetence dealing with clubs, others like @dkw have pointed out Super League done well might return football to some semblance of normality.

 

[Scott]

Interesting topic, thanks for the information SydneyChelsea.

 

[SydneyChelsea]

An update for the 3 people and tumbleweed that are interested:

Fifpro have released the following explainer/statements on the next steps for FIFA with regard to transfer rules.

https://fifpro.org/en/who-we-are/fifpro-members/fifpro-europe/the-lassana-diarra-judgement-explained-what-does-it-mean-for-footballers
https://fifpro.org/en/who-we-are/fifpro-members/fifpro-europe/fifpro-legal-director-alexandra-gomez-bruinewoud-on-what-the-lassana-diarra-ruling-means-and-what-happens-next

The main point to take away here is that the ruling means substantially less penalty for termination of contract by players, which in turn will likely limit the amount that clubs would have to pay in transfer fees. It could end up being a system similar to Spain's release clause model where the player buys themself out of a contract (price being wages x years left) and the 'buying' club reimburses the player. Any transfer fee paid by a club would not be able to be recouped or considered in any compensation calculation, since the fee was decided between two parties independently of the player. The rules around things like 'tapping up' etc would also need to be abolished and players won't need the permission of their club to seek a transfer.

The players' union is open to collectively bargaining for a new RSTP, with the caveat that the ECJ has questioned whether FIFA has any jurisdiction to make rules regarding a player's employment at all. Given that the powerful blocs of England, Saudi Arabia (and by extension, the whole AFC), USA and South America are not bound by EU law, it is still hard to say whether FIFA will take a global approach and perhaps their current refusal to engage in collective bargaining with the union indicates they will not.

I wonder if England would even consider withdrawing from UEFA over it, or whether the UCL/Euros remain too big a monetary carrot for clubs and the FA. Or, whether British law is still similar enough to EU law that the same rules and principles will apply to PL players too.

 

[erskblue]

Cheers for that info!

Appreciated!

 

[terraloon]

An update for the 3 people and tumbleweed that are interested:

Fifpro have released the following explainer/statements on the next steps for FIFA with regard to transfer rules.

https://fifpro.org/en/who-we-are/fifpro-members/fifpro-europe/the-lassana-diarra-judgement-explained-what-does-it-mean-for-footballers
https://fifpro.org/en/who-we-are/fifpro-members/fifpro-europe/fifpro-legal-director-alexandra-gomez-bruinewoud-on-what-the-lassana-diarra-ruling-means-and-what-happens-next

The main point to take away here is that the ruling means substantially less penalty for termination of contract by players, which in turn will likely limit the amount that clubs would have to pay in transfer fees. It could end up being a system similar to Spain's release clause model where the player buys themself out of a contract (price being wages x years left) and the 'buying' club reimburses the player. Any transfer fee paid by a club would not be able to be recouped or considered in any compensation calculation, since the fee was decided between two parties independently of the player. The rules around things like 'tapping up' etc would also need to be abolished and players won't need the permission of their club to seek a transfer.

The players' union is open to collectively bargaining for a new RSTP, with the caveat that the ECJ has questioned whether FIFA has any jurisdiction to make rules regarding a player's employment at all. Given that the powerful blocs of England, Saudi Arabia (and by extension, the whole AFC), USA and South America are not bound by EU law, it is still hard to say whether FIFA will take a global approach and perhaps their current refusal to engage in collective bargaining with the union indicates they will not.

I wonder if England would even consider withdrawing from UEFA over it, or whether the UCL/Euros remain too big a monetary carrot for clubs and the FA. Or, whether British law is still similar enough to EU law that the same rules and principles will apply to PL players too.

From my limited experience in football administration( I had an unpaid post at a non league club) I can honestly say that the suggestion in FIFPROs narrative that 94 % of cases currently being dealt with by FIFA re termination of contracts are complaints from players, without context that ratio isn’t really that informative .My point here that worldwide there are tens of thousands of players there may be less than a hundred cases. The actual numbers would be far more helpful. Are we talking about a lot of cases or very few?

I only ever witnessed in 5 years two players having their contracts torn up by a club and both on an appeal at the FA led to reinstatement.

Already in the FIFA regulations significant aspects are already in place to placate the EU. For instance freedom of movement allows EU players to move from country to country within the EU at 16 . Worldwide it is 18.

It would be really amusing if significant changes only became appropriate in a negative way to countries under the jurisdiction of the European courts.!

I agree with you that one possible route is a Spanish/ Portuguese obligation for a buyout clause to be included in a mutually agreed contract but the problem with that is in a way it could damage players at lower level of football.

Players I believe need to be careful what they wish for. There is another case gaining traction in that most players have always been treated as short term / temporary employees. In effect at the end of their contracts save a couple of weeks pay the club and the player shook hands and that was it. I worked in the Civil Service where we relied quite heavily on short term employees but if they were in post after 2 years they had to become permanent employees with all the rights and benefits that entailed

The case in question is a player that had a contract for 1 /2 years kept signing new ones . After 10 or so years the club didn’t extend . Now the player is claiming he was sacked . The club I believe tried to get around that by claiming he was made redundant but that claim was quickly withdrawn.

 

[SydneyChelsea]

From my limited experience in football administration( I had an unpaid post at a non league club) I can honestly say that the suggestion in FIFPROs narrative that 94 % of cases currently being dealt with by FIFA re termination of contracts are complaints from players, without context that ratio isn’t really that informative .My point here that worldwide there are tens of thousands of players there may be less than a hundred cases. The actual numbers would be far more helpful. Are we talking about a lot of cases or very few?

I only ever witnessed in 5 years two players having their contracts torn up by a club and both on an appeal at the FA led to reinstatement.

Already in the FIFA regulations significant aspects are already in place to placate the EU. For instance freedom of movement allows EU players to move from country to country within the EU at 16 . Worldwide it is 18.

It would be really amusing if significant changes only became appropriate in a negative way to countries under the jurisdiction of the European courts.!

I agree with you that one possible route is a Spanish/ Portuguese obligation for a buyout clause to be included in a mutually agreed contract but the problem with that is in a way it could damage players at lower level of football.

I think FIFPRO are trying to show the sheer disproportionality, albeit with inflated numbers given this case was based on EU data yet their article references their global involvement. However, it is an argument upheld by the court. In no other sphere do employers so routinely pursue or sanction their employees for changing jobs. With the Court essentially ruling that RSTP is designed to favour clubs over players, it has rejected the idea that clubs intrinsically need more control over players in order to promote 'contract stability' and in doing so is a restriction 'by object' on freedom of movement and competition rules.

The big takeaway is that players aren't assets, they are employees that should be able to change employers the same way and for the same reasons as any other employees, and there is no evidence the competition system will be irreparably broken if more freedom is given to player movement. The transfer system is essentially clubs inducing players to breach their contract, then negotiating compensation with a 'buying' club in exchange for not suing them.

The politics are more fascinating than the legal arguments. The potential bloc of England/Saudi/Qatar/AFC/CONCACAF is the undisputed financial muscle of both UEFA and FIFA, meaning radically different circumstances to Bosman times where Europe was the heart and financial muscle.

Although research shows that the 'trickle down' effect of transfer fees is actually quite overstated within national associations, there are now significant amounts of money flowing trans-nationally and confirm evidence of a 'nursery club' effect i.e small clubs that develop young players tend to profit more from the transfer system, so there are questions about how the removal of the transfer system would affect revenue redistribution - especially if you're a CONMEBOL club.

While we're on redistribution, RSTP's removal could mean practically nothing changes as well because the economic incentive shifts from auctions between clubs on transfer fees to auctions between players and clubs for substantially higher wages. It would certainly finally end the post-Neymar transfer fee madness. Maybe we'd see players more likely to be swayed by 'projects' and the clubs themselves, a bit like what we see in American sports.

Finally, though England is not subject to the EU courts, many have pointed out that similar law already exists in England and pending a legal challenge, English football would likely have to adopt the changes too - so does England side with UEFA or support a generational shift in power at FIFA?

Players I believe need to be careful what they wish for. There is another case gaining traction in that most players have always been treated as short term / temporary employees. In effect at the end of their contracts save a couple of weeks pay the club and the player shook hands and that was it. I worked in the Civil Service where we relied quite heavily on short term employees but if they were in post after 2 years they had to become permanent employees with all the rights and benefits that entailed

The case in question is a player that had a contract for 1 /2 years kept signing new ones . After 10 or so years the club didn’t extend . Now the player is claiming he was sacked . The club I believe tried to get around that by claiming he was made redundant but that claim was quickly withdrawn.

I agree. There is a real chance that top clubs, especially those who now rely on transfer dealing as part of their regular business, completely throw their toys out of the pram with this one. The case example you talk about is an interesting one particularly in light of the Court's comments that FIFA is not competent to regulate employment law and that should entirely be a matter for national employment law. I'm not sure that either FIFA or FIFPRO want that outcome. It might be nice for footballers in the EU bubble but imagine what would happen in somewhere like the USA where employment law is mostly a matter for each individual state!

I am also a civil servant, albeit in Australia. It's like your Civil Service but with kangaroos and between 2000 - 2013 the right to permanency for temporary staff was systematically removed. Similar principles will apply in jurisdictions where there are ongoing battles about the rights and status of 'gig employees', but in Europe at least it is settled that contracted footballers are unequivocally employees and subject to employment law principles.

Should FIFA adopt the EU principles globally it would be very interesting for professional footballers here since football's player movement system in Australia is radically more restrictive than NRL, Rugby or AFL, even if our professional clubs rarely give more than 2-year contracts. In the other sports it is common to see players move mid-season and contract stability is actually fairly well self-regulated. I think that actually gives lie to FIFA's idea that clubs need all the power in order to maintain a stable system, to be honest.

 

[Deino]

I pretty much agree with this. If I read that correctly, it's better for the sport for squad size to be determined by wages. It cuts down on overpaid players and clubs overspending their budget.

That said, this will hit the smaller clubs hard. There will no longer be another Newcastle/Chelsea/City-type takeover. Unless the smaller clubs upgrade their scouting system, the big clubs will stay in the top 4-7 places.

 

[SydneyChelsea]

That said, this will hit the smaller clubs hard. There will no longer be another Newcastle/Chelsea/City-type takeover. Unless the smaller clubs upgrade their scouting system, the big clubs will stay in the top 4-7 places.

That's true but on the flipside smaller clubs can compete solely on wages now, since they don't need to budget for transfer fees.

 

[SydneyChelsea]

FIFA has just suffered another serious insult to its authority, with the ECJ ruling that CAS decisions can be challenged in national courts.

Normally football contracts have arbitration-only clauses whereby disputes are resolved through arbitration with FIFA tribunals or by appeal to CAS. Now the ECJ is saying, for disputes in the EU, CAS judgements can be reviewed by national courts to see if they are consistent with national and EU law.

If the Diarra matter was a body blow to FIFA, this could end up being a headshot. FIFA have long relied on a principle that it was in the public interest for sport to have its own specific, at times above-the-law rules, but the ECJ are slowly defining the limits to that principle.

This case is also the latest legal domino to fall down from the ESL case. It seems like the EU courts have begun examining FIFA as a multi-national, revenue-raising corporation, instead of the previously naive illusion where FIFA was allowed to operate outside the law because it was seen as a neutral sporting regulator. It is also important to note that Bosman, Diarra and now this case are the work of one Jean-Louis Dupont, who has spent the last 30 years seemingly single-handedly preparing to dismantle the notion of "specificity of sport" that has given FIFA free reign.

The judgement is fresh so there's not a lot of commentary out there right now but it's possible that one cannot overstate how important this decision is.

@terraloon n pointed out that disputes like the City vs PL are currently bound to arbitration. With the caveat that ECJ decisions aren't automatically binding in England, this ruling could throw all that up in the air.