Due
to the legitimate excitement over the recent Pechstein
ruling, many have overlooked a previous German decision
rendered in the Wilhelmshaven SV case
(the German press did report on the decision here
and here).
The few academic commentaries (see here
and here)
focused on the fact that the German Court had not recognized the res judicata effect of a CAS award.
Thus, it placed Germany at the spearhead of a mounting rebellion against the legitimacy
of the CAS and the validity of its awards. None of the commentators weighed in
on the substance of the decision, however. Contrary to the Court in Pechstein, the judges decided to evaluate
the compatibility of the FIFA rules on training compensations with the EU free
movement rights. To properly report on the decision and assess the threat it
may constitute for the FIFA training compensation system, we will first
summarize the facts of the case (I), briefly explicate the mode of functioning
of the FIFA training compensation system (II), and finally reconstruct the
reasoning of the Court on the compatibility of the FIFA rules with EU law
(III).
I.
The complex facts of the case
In
a nutshell, the case concerns the move of an Argentinean player, with an
Italian passport (as probably two-third of Argentina), to SV Wilhelmshaven and
the training compensation due to its former youth clubs back in Argentina. The
player, born in 1987, was an amateur player with an Argentinean club called Excursionistas
from 20 March 1998 to 7 March 2005 and with River Plate from 8 March 2005 until
7 February 2007. From 8 February 2007 to 30 June 2007 he signed a fixed-term
professional contract with SV Wilhelmshaven, which was later extended for one
more season.
In
2007 SV Wilhelmshaven was playing in the Regional League Nord (fourth tier of
German football) and was therefore considered as a club of category 3 for the
purpose of the FIFA Regulations for the Status and Transfer of
Players (RSTP). In June 2007, Excursionistas and River Plate initiated
proceedings with the FIFA Dispute Resolution Chamber (hereafter DRC) claiming €100,000
and €60,000 respectively in training compensation. These demands were partially
granted by the DRC (River Plate obtained
“only” €57,500) in two concomitant decisions (available here
and here)
on 5 December 2008.
SV
Wilhelmshaven decided to appeal the DRC’s decisions to the Court of Arbitration
for Sport (CAS). A hearing in front of a sole arbitrator was held on 26 August
2009 and the award
rendered on 5 October 2009. The arbitrator confirmed the decision of the DRC
awarding the claimed compensations to both Argentinean clubs and rejected all
the objections raised by SV Wilhelsmshaven.
The
club, however, continued stubbornly to refuse to pay the training
compensations. On 13 September 2011, FIFA’s disciplinary Committee sanctioned
SV Wilhelmshaven with additional fines and imposed a payment deadline of 30
days. If the club would not respect the deadline, its first team would face a six-point
penalty. In light of non-compliance with this decision, FIFA called on the DFB
(German FA) to enforce the sanction and secure the payment of the fines. The
DFB dutifully implemented the order: six points were deducted and the club’s
financial account with the DFB was debited from the requested €21,150. However,
SV Wilhelmshaven is a tough nut to crack. Despite the confirmation of the
sanctions by the DFB’s internal tribunal it kept on refusing to pay the
training compensations awarded by the DRC and CAS. On 15 August 2012, the FIFA
asked the DFB to deduct six more points. Given that, in the meantime, the club
had been relegated to a lower league, the Norddeutscher Fussball Verband was competent
to implement the latest sanction instead of the DFB. It did so on 23 August
2012 and the internal tribunal of the association later confirmed the validity of
this decision. In May 2013, the club decided to challenge the point deduction
in front of the German courts. Meanwhile, on 5 October 2012, a new decision of
FIFA’s Disciplinary Committee imposed the relegation of the club. The SV
Wilhelmshaven appealed the decision to the CAS, which confirmed FIFA’s
disciplinary decision on 24 October 2013 (unfortunately the relevant CAS award
has not been published). Hence, FIFA asked the DFB to implement this decision.
The forced relegation was definitely ratified by the board of the Norddeutscher
Fussball Verband on 7 December 2013 and validated by the internal tribunal on
20 February 2014.
The
club was challenging both the six-point deduction and the forced relegation in
front of the regional Court of Bremen. In first instance, the tribunal simply rejected
the claims of the club and considered that the CAS award, not challenged by the
club in front of the Swiss Federal tribunal, was a valid legal basis for the
sanctions. The club appealed the decision to the Highest Regional Court, which
in its ruling of 30 December 2014 overruled the first instance Court. Indeed,
it held that the CAS award was contrary to EU law and, therefore, could not be
relied upon by the Norddeutscher Fussball Verband to sanction the club (more on
this arbitration dimension of the case here
and here).
Combined with the Pechstein ruling,
this case constitutes a powerful challenge to the CAS, but it is also a
challenge to FIFA’s training compensation mechanisms. It is on this latter
aspect that we will focus in this blog.
II.
The FIFA RSTP’s Training
Compensation System
Let
us first take a close look at FIFA’s training compensation regime enshrined in
Article 20 of the latest FIFA
Regulations on the Status and Transfer of Players
(RSTP). It must be highlighted that the FIFA Regulations were adopted after
nearly two years of negotiations between the European Commission, UEFA, FIFA
and FIFPro.[1]
The negotiations ended with the adoption
of a set of principles as a basis for the new FIFA
transfer regulation. Concerning the training compensations, the principles
stipulated that “in the case of players aged under 23, a system of training
compensation should be in place to encourage and reward the training effort of
clubs, in particular small clubs”.
Article
20 of the FIFA RSTP transposing this principle reads as follows:
“Training compensation shall be
paid to a player’s training club(s): (1) when a player signs his first contract
as a professional, and (2) each time a professional is transferred until the
end of the season of his 23rd birthday. The obligation to pay training
compensation arises whether the transfer takes place during or at the end of
the player’s contract. The provisions concerning training compensation are set
out in Annexe 4 of these regulations.”
Hence,
Article 20 establishes two situations giving rise to a right to obtain a
training compensation: the signing of a first professional contract and each
transfer until the end of the season of the player’s 23rd birthday. The key to
understanding how this duty to pay a training compensation operates in practice
can only be found in the Annex 4 of the RSTP. Article 1 paragraph 1 of Annex 4 qualifies
the scope of the obligation to pay a training compensation. It states that:
“A player’s training and education
takes place between the ages of 12 and 23. Training compensation shall be
payable, as a general rule, up to the age of 23 for training incurred up to the
age of 21, unless it is evident that a player has already terminated his
training period before the age of 21. In the latter case, training compensation
shall be payable until the end of the season in which the player reaches the
age of 23, but the calculation of the amount payable shall be based on the
years between the age of 12 and the age when it is established that the player
actually completed his training.”
Pursuant to article 2 paragraph 2 of Annex 4, a
training compensation is not due when “the former club terminates the player’s
contract without just cause (without prejudice to the rights of the previous
clubs) “, or “the player is transferred to a category 4 club”, or “a
professional reacquires amateur status on being transferred”.
To calculate the amount of training compensation due,
every association member of FIFA is “to divide their clubs into a maximum of
four categories in accordance with the clubs’ financial investment in training
players”.[2]
For each category the training costs are equivalent “to the amount needed to
train one player for one year multiplied by an average “player factor”, which
is the ratio of players who need to be trained to produce one professional
player”.[3]
The current training costs as defined by each football association for 2014 are
available here.
The training compensation is meant to cover “the costs that would have been
incurred by the new club if it had trained the player itself”.[4]
Thus it is calculated “by taking the training costs of the new club multiplied
by the number of years of training, in principle from the season of the
player’s 12th birthday to the season of his 21st birthday”.[5]
The training costs for players for the seasons between their 12th
and 15th birthdays, however, are always based “on the training and
education costs of category 4 clubs”.[6]
Following the negotiations with the European
Commission, FIFA carved out a specific provision for players moving from one
association to another inside the territory of the EU (including also the EEA).
This provision stipulates that “[i]f the player moves from a lower to a higher
category club, the calculation shall be based on the average training costs of
the two clubs”.[7] If
the player moves from a higher to a lower category, “the calculation shall be
based on the training costs of the lower category club”.[8]
Moreover, “the final season of training [in the sense of article 1 paragraph 1
Annex 4] may occur before the season of the player’s 21st birthday if it is
established that the player completed his training before that time” .[9]
Finally, and maybe most importantly, “[i]f the former club does not offer the
player a contract, no training compensation is payable unless the former club
can justify that it is entitled
to such compensation”.[10]
The
FIFA framework applicable to training compensations is not easy to navigate and
many of its provisions have been refined by the jurisprudence of the CAS and
the DRC (see this blog
for a synthetic assessment).[11]
The compatibility of this complex regulatory construction with EU law has never
been tested in front of courts (be it national or European). This makes this
lawsuit so decisive.
III.
The SV Wilhelmshaven case and the
compatibility of FIFA’s training compensation system with EU law
In
its Bosman
ruling, the Court of Justice (hereafter CJ) held that the aim of “encouraging the recruitment and training of
young players must be accepted as legitimate”.[12] It
added “that the prospect of receiving transfer, development or training fees is
indeed likely to encourage football clubs to seek new talent and train young
players” .[13]
Nevertheless, it concluded that “because it is impossible to predict the
sporting future of young players with any certainty and because only a limited
number of such players go on to play professionally, those fees are by nature
contingent and uncertain and are in any event unrelated to the actual cost
borne by clubs of training both future professional players and those who will
never play professionally”.[14]
Hence, receiving such fees could not be “a decisive factor in encouraging
recruitment and training of young players or an adequate means of financing
such activities, particularly in the case of smaller clubs”.[15] As a
final nail into the coffin of training compensations, at least it was thought
at that time, the Court followed its Advocate General in holding that “the same
aims can be achieved at least as efficiently by other means which do not impede
freedom of movement for workers”.[16]
The
FIFA training compensation system as it stands nowadays is a rebuttal to the Bosman ruling. Indeed, it pretends to do
the impossible in the eyes of the Court: calculating realistically the costs of
training a player in a specific club in order to offer an objective benchmark
for the training compensations. Moreover, FIFA simply disregarded the proposals
made by Advocate General Lenz, who suggested potential alternative financing
mechanisms to support the training of players.[17]
FIFA’s rules, endorsed by the EU Commission, have never been tested in front of
the CJ, though it came close to it in the relatively recent Olympique Lyonnais
case. Here, the Court reaffirmed that “the objective of encouraging the
recruitment and training of young players must be accepted as legitimate”.[18]
It also recognized that “the clubs which provided the training could be
discouraged from investing in the training of young players if they could not
obtain reimbursement of the amounts spent for that purpose where, at the end of
his training, a player enters into a professional contract with another club”.[19]
Thus, it held “that a scheme providing for the payment of compensation for
training where a young player, at the end of his training, signs a professional
contract with a club other than the one which trained him can, in principle, be
justified by the objective of encouraging the recruitment and training of young
players”.[20]
However, to be proportionate, the scheme must be “taking due account of the
costs borne by the clubs in training both future professional players and those
who will never play professionally” .[21]
In the Olympique Lyonnais case, the
French system in place at the time of the dispute, and since then replaced, was
deemed incompatible with EU law as the amount of the compensation was not
directly correlated with the costs of training the player. Nonetheless, UEFA
and FIFA were prompt to see in this judgment a “significant step forward” [22]
for the compatibility of the FIFA system with EU law. The present SV Wilhelmshaven case is a good
opportunity to test this assumption.
SV
Wilhelmshaven had argued in front of the CAS that the FIFA RSTP was contrary to
the right to free movement of workers under EU law. However, the single
arbitrator rejected the applicability of EU law. Instead, relying on previous CAS
awards, it held that “such argument would have been
available to the individual Player, not to the Appellant”.[23]
This interpretation contradicts the well-established case law of the CJ[24],
as noted by the Bremen Court.[25]
Moreover, the CAS also declined to recognize the applicability to the case at
hand of Article 6 of the Annex 4 to the
FIFA RSTP. It considered that “[t]he
title of this provision clearly suggests that its scope is narrowly
circumscribed within a limited geographic area, i.e. the EU/EEA
territory”.[26] Furthermore,
“it appears that article 6 of Annex 4 to the FIFA Regulations is nothing more
than the codification of the system agreed upon by the European authorities and
put into place to govern the transfer of a player moving from one association
to another inside the territory of the EU/EEA”.[27]
Thus, the panel sees “no reason to depart from the unambiguous wording of
article 6 of Annex 4 to the FIFA Regulations, which is obviously not applicable
in the case of a player moving from a country outside the EU/EEA to a country
within the EU/EEA”.[28]
On this exact point, the Bremen Court begged to differ.
The
Bremen Court was not convinced by the distinction between intra-EU and extra-EU
transfers made in article 6 Annex 4. The right to free movement of workers
extends also to EU citizens moving from a non-EU country to an EU Member state.
Therefore, not only could the club legitimately invoke the right to free movement
of its player, but it was also right to consider that article 6 annex 4 should have
been applicable to an EU citizen moving from Argentina to Germany. Consequently,
the German judges considered that the non-application of article 6 and the
imposition of the calculation method foreseen in article 4 and 5 of the Annex 4
were contrary to the player’s free movement rights under EU law.[29]
Nonetheless, it also acknowledged that the FIFA training compensation rules
were supporting “the objective of encouraging the recruitment
and training of young players”.[30]
Furthermore, Article 6 of the Annex 4 is deemed suitable to attain
this objective and compatible with EU law.[31]
The key point being for training compensations to cover only the real costs
endured to train the player[32],
this is what the CAS and the DRC have failed to take in account in the SV Wilhelmshaven case.[33]
Conclusion
The
SV Wilhelmshaven case has potentially
damaging consequences for the Court of Arbitration for sport. It intrudes into
the system of private enforcement of the CAS awards by forcing the sporting
association to consider whether the awards are compatible with German public
policy, and especially with EU law before enforcing disciplinary measures based
on them. We have deliberately ignored this aspect of the case, as it will be
the object of a future blog post. Instead, we decided to focus on FIFA’s
training compensation system and its compatibility with EU law.
The
Bremen Court’s ruling highlighted the substantial shortcomings of the CAS in
dealing with EU law. A long-standing CAS jurisprudence was shown fundamentally
flawed and overtly contradictory to the CJ’s interpretation of EU law.
Moreover, the FIFA training compensation system as it stands was considered
incompatible with EU law in the context of a transfer of an EU citizen from
Argentina to an EU Member state. This is not a remote scenario especially when South-American
players are involved. However, there is also some good news for FIFA, as the
Court found that the FIFA intra-EU training compensation rule is in line with
EU law. The case is now at the Bundesgerichtshof (BGH), the highest German
civil Court. With this case and the Pechstein
case on its plate, the BGH will fundamentally shape the future of sport’s
private dispute resolution mechanisms and governance structure. If it is asked
to do so or ex officio if it feels
the need, the BGH could refer a
preliminary question to Luxembourg on the compatibility of the FIFA training
compensation system with EU free movement rights. This would be the best way to
finally settle a question which has been left wide open since the Bosman ruling, now 20 years ago.