EU ruling against FIFA transfer fees obvious to US sports lawyers

In a judgment of October 4, 2024, the Court of Justice of the European Union, the EU’s highest court, ruled that certain FIFA rules requiring compensation to be paid to a player’s former club if the player changes teams violated EU law. The Court found that the rules unjustifiably “impede the free movement of professional footballers” and unjustifiably restrict cross-border competition. U.S. courts have reached the same conclusion about similar restrictions imposed by sports leagues decades ago.

The case of Lassana Diarra

The basic case concerns Lassana Diarra, a now retired French player. Diarra played for Russian club Lokomotiv Moscow in 2013–14. After a dispute with Lokomotiv, Diarra’s contract was terminated. According to reports, he was then in negotiations to play for the Belgian club Charleroi. However, Diarra claims that the negotiations failed because Charleroi believed they would have to pay Lokomotiv compensation under FIFA’s Regulations on the Status and Transfer of Players. These rules require clubs that sign contracts or acquire players to pay compensation to the players’ previous teams depending on various factors, such as the costs associated with training the player and the players’ age and contract status. These payments, called training compensation or solidarity compensation, are intended to compensate teams for player development costs and can run into the millions of dollars.

Diarra interrupted the 2014-15 season and ultimately commenced legal proceedings that are now successfully challenging FIFA’s rules.

The NFL’s Rozelle Rule

FIFA’s rules are not new in their design. In 1963, the NFL introduced the Rozelle Rule. The rule, named after then-NFL commissioner Pete Rozelle, was a unilaterally imposed rule that allowed players to sign with other teams after their contract expired, but the commissioner could transfer players to the club the player had left. The rule had a chilling effect on player movement, as only four players changed clubs between 1963 and 1973.

In 1972, Baltimore Colts player and future Hall of Famer John Mackey filed a lawsuit alleging that the Rozelle Rule was a violation of antitrust law. Specifically, Section 1 of the Sherman Act prohibits two or more parties from conspiring to unreasonably restrain trade in a marketplace. Mackey argued that the NFL clubs, by collectively agreeing to and implementing the Rozelle Rule, did not compete in a free and open market for player services as required by antitrust law.

The Minnesota District Court and the Eighth Circuit Court of Appeals agreed with Mackey. The Eighth Circuit held that “the alleged need to recover player development costs cannot justify the Rozelle Rule restrictions, which is of particular relevance to the current FIFA regulations decision. This expense is a normal cost of doing business and is not specific to professional football.”

The Mackey case was one of many from the 1970s to 1990s in which players successfully challenged labor market restrictions in the NFL, NBA and NHL (the challenge to MLB’s restrictions was complicated by an anomalous antitrust exemption, now repealed in relevant part). Leagues have unilaterally banned or restricted free agency for decades, while reducing competition between clubs as well as player salaries and selection.

Non-statutory dismissal

As a result of the players’ legal victories, leagues began negotiating with their players to protect such restrictions with non-statutory work leave, perhaps the most important concept in sports and law. Non-statutory employment relief is a policy developed by the Supreme Court that grants antitrust immunity to employers who agree to labor market-restrictive policies, as long as those policies are negotiated with the employees’ union.

For decades, non-statutory layoffs have been a cornerstone of labor relations in American sports. In exchange for salary caps, player salaries and free agency limits, players receive a guaranteed share of the league’s revenues (mainly from television broadcasting rights). After years of disputes over the limits of exemption in the 1980s and 1990s, labor relations in American sports have been relatively calm in recent years.

EU’s own goal

For some reason, the European sports industry – or the courts – don’t seem to have learned the lessons from decades of litigation in American sports. FIFA’s rules are problematic because they were not negotiated with the players. Article 101 of the Treaty on the Functioning of Europe (TFEU) is functionally the same as Section 1 of the Sherman Act in prohibiting unjustified restrictions on trade between two or more parties.

However, the EU also recognizes a non-statutory labor exemption, allowing certain labor market restrictions if negotiated with a union. As a result, FIFA – and its domestic leagues – could likely legally impose transfer restrictions if players consented, as U.S. sports leagues have done for nearly 50 years.