Editor's note: Andy Brown is a freelance journalist who has been writing about the governance of sport for over 15 years. He is the editor of The Sports Integrity Initiative where this blog appeared first.

For the last three days, I have been struggling with what to write regarding the Swiss Federal Tribunal’s (SFT) Decision to dismiss a challenge from Caster Semenya and Athletics South Africa (ASA) against the Court of Arbitration for Sport’s (CAS) Decision to dismiss a challenge to the Eligibility Regulations for the Female Classification (Athletes with Differences of Sex Development), otherwise known as the DSD Regulations. From reading World Athletics’ statement welcoming the ruling, one could be forgiven for thinking that it had won a major trial. Sports journalists, accustomed to covering events now curtailed by Covid-19, focus on the fact that Semenya has ‘lost’ her case against the DSD Regulations. Neither assertion is strictly accurate.

The SFT’s powers to review the CAS’s ruling are severely limited. It can only consider whether the CAS Decision violates ‘widely recognised principles of public order’ on Swiss public policy grounds. The SFT has only reversed a decision based on a a violation of Swiss public policy once in 30 years.

The SFT didn’t reconsider the evidence put forward to the CAS. ‘For there to be incompatibility with public policy, it is not enough that the evidence has been poorly assessed, that a finding of fact is manifestly false or that a rule of law has been clearly violated’, its Decision reads. ‘The only question to be resolved is in fact whether or not the verdict of the CAS renders the referred award incompatible with substantive public policy’. 

There were questions about whether the appeal from Semenya and ASA qualified to be reviewed by the SFT in the first place. World Athletics is a private organisation headquartered in Monaco, and the SFT was troubled as to whether such a complaint brought by a South African athlete against an overseas private organisation is capable of violating Swiss public policy.

‘It is doubtful whether the prohibition of discriminatory measures falls within the scope of the restrictive concept of public order when the discrimination is committed by a private person and occurs in relations between individuals’, the Decision quotes from its pervious 29 July 2019 Decision, which refused the ASA’s request to provisionally suspend the application of the DSD Regulations. ‘In any event, there is no need to examine this question further here since […] the award under appeal does not in any way establish discrimination which would be contrary to public order’. 

The SFT ruled that the CAS was correct to uphold conditions of participation for 46 XY DSD athletes in order to guarantee fair competition for certain disciplines in female athletics. In doing so, the SFT was ruling on whether the decision taken by the CAS violates public policy, based only on the complaints brought forward by Semenya and ASA. 

Semenya and the ASA had challenged the CAS Decision based around the idea that the DSD Regulations are discriminatory. The CAS held that they are discriminatory, but agreed with the IAAF (as World Athletics was then named) that such discrimination was necessary to protect its female category. The SFT ruled that even if the discriminatory rules of a private organisation such as the IAAF were considered able to pose a threat to public order, Semenya and the ASA had failed to demonstrate that the CAS Decision was so egregious that it posed such a threat.

‘Caster Semenya essentially alleges a violation of the prohibition of discrimination’, reads the Swiss Federal Supreme Court statement. ‘The CAS has issued a binding decision based on the unanimous opinion of the experts who were consulted that testosterone is the main factor for the different performance levels of the sexes in athletics; according to the CAS, women with the “46 XY DSD” gene variant have a testosterone level comparable to men, which gives them an insurmountable competitive advantage and enables them to beat female athletes without the “46 XY DSD” variant. Based on these findings, the CAS decision cannot be challenged. Fairness in sport is a legitimate concern and forms a central principle of sporting competition. It is one of the pillars on which competition is based. The European Court of Human Rights also attaches particular importance to the aspect of fair competition. In addition to this significant public interest, the CAS rightly considered the other relevant interests, namely the private interests of the female athletes running in the “women” category.’

Such strong support for the principle behind its DSD Regulations was rightly welcomed by World Athletics. Its statement asserted that the SFT ‘acknowledged that innate characteristics can distort the fairness of competitions’. I would argue that the SFT ruling didn’t do this, but rather found that a CAS Decision asserting this didn’t violate Swiss public policy. Semantics, perhaps.

Likewise, when World Athletics quotes the SFT Decision as confirming that ‘It is above all up to the sports federations to determine to what extent a particular physical advantage is likely to distort competition and, if necessary, to introduce legally admissible eligibility rules to remedy this state of affairs’, it is paraphrasing two texts quoted in the SFT Decision. The first is ‘La qualification juridique des rules autonomes des organizations sportive’ by Jérôme Jaquier, 2004. ‘Inborn characteristics specific to athletes in a particular group can also distort the fairness of competition’, the SFT Decision quotes from Jaquier. ‘When they enact regulations, the objective of sports federations is to ensure fair and equitable competition’.

The context of the second quote, from ‘Sportrecht – Berücksichtigung der Interessen des Sports in der Rechtsordnung’ by Martin Kaiser, 2011, is even more interesting. It is preceded with a statement from the Swiss Federal Supreme Court, which reads: ‘It is not for the Federal Court to make, abstractly, comparisons between the disciplines to assess whether a particular athlete has an advantage that makes sporting competition meaningless’. 

‘It is above all for the sporting federations to determine to what extent a particular physical advantage is liable to distort competition’, the SFT Decision quotes from Kaiser. ‘And, if so, to establish legally admissible eligibility rules to remedy this state of affairs’. 

Again, such details might be considered as semantics. But – I would argue – important semantics. Reading the media maelstrom that has resulted from the SFT Decision, one could be forgiven for assuming that Semenya has lost her case, and has no chance of ever defending her 800m title. However, a statement issued by her lawyers reveals that she intends to challenge the ruling in European and domestic courts.

“I am very disappointed by this ruling, but refuse to let World Athletics drug me or stop me from being who I am”, the statement continues. “Excluding female athletes or endangering our health solely because of our natural abilities puts World Athletics on the wrong side of history. I will continue to fight for the human rights of female athletes, both on the track and off the track, until we can all run free the way we were born. I know what is right and will do all I can to protect basic human rights, for young girls everywhere.”

Men vs. Women 

World records prove that men run faster and throw further than women. As explained in the CAS Decision, the IAAF modified the DSD Regulations to exclude XX athletes from their scope. By doing this, it was able to frame the DSD Regulations as mitigating any advantage held by ‘biologically male’ athletes in international events run between 400m and one mile in its female category.

Caster Semenya fits the IAAF definition as ‘biologically male’, as she has one of the five DSDs outlined in the DSD Regulations, and competes in the Restricted Events. Semenya’s status as a 46 XY DSD athlete was confirmed by the Swiss Federal Supreme Court on 29 July 2019, when it revoked a supra-provisional suspension of the application of the DSD Regulations to Semenya. ‘Mokgadi Caster Semenya is an “athlete concerned” within the meaning of Article 2.2 of the DSD Regulations’, reads its 29 July interlocutory order (available here in French).

The Semenya case isn’t exclusively about whether men should be able to line up against women in female events – although the debate has sometimes been framed that way. Caster Semenya is a woman, who has been outed as having a DSD by World Athletics’ relentless case against her, which began when she was 18 (she is now 29). She is a 46 XY karyotype woman who has been very successfully competing (and this is not insignificant) against 46 XX karyotype women.

The Semenya case is firstly about whether World Athletics has conclusively proven that women who are 46 XY DSD karyotype hold a significant advantage in the events the rules cover. Secondly, it is also about whether it has proven that such an advantage is so great that it renders competition between female and DSD athletes in the covered events meaningless.

Such an argument should always be decided scientifically. The SFT Decision doesn’t do that. There were serious concerns about the scientific evidence used to support the DSD Regulations both before, during, and after the CAS Decision. Although we have been through some of these concerns before, they are worth restating, as they have yet to be addressed.

There are also concerns about the way in which sport’s rules and regulations have been moulded and changed in order to accommodate the DSD Regulations. They have also not been addressed. But, firstly, it is important to explain what the DSD Rules seek to regulate and why.

The DSD Rules

The DSD Rules, as they have been called since November 2019 (PDF below), cover athletes with one of five listed DSDs competing in international events run between 400m and one mile in World Athletics’ female category, if their endogenous (natural) testosterone levels are above 5nmol/L and have an ‘androgenising effect’ (i.e. if that testosterone is taken up by their androgen receptors and boosts their physiology). Athletes who meet these conditions must use hormonal contraceptives to reduce their testosterone levels to below 5 nmol/L for six months prior to competing, and must maintain testosterone levels at below 5 nmol/L in order to continue competing.

Testosterone is a natural, endogenous (internally produced) steroidal hormone. In the XY karyotype, it is understood that testosterone is the single primary hormone driving the endocrine system, a chemical messaging system that regulates the physiology. In the XX karyotype, it is understood that two primary hormones – oestrogen and progesterone – perform the same function, along with testosterone in much smaller amounts. 

The logic behind the DSD Rules – explained during Semenya’s challenge to them – is that DSD athletes develop an unfair advantage over XX karyotype women due to the continued action of ‘elevated’ testosterone on their XY karyotype physiology from puberty onwards. I have termed this a ‘legacy advantage’, since not every DSD athlete will automatically become an elite runner between 800m and one mile in World Athletics’ female category. Correct diet, dedication, and training over time is also required.  

The DSD Rules seek to reconcile this ‘legacy advantage’ by requiring medical intervention in the present. It could be argued that World Athletics is medically handicapping DSD athletes in the present for an advantage they have strived to develop over time. But as explained, the SFT was not required to consider that conundrum.

‘Affected athletes can either (a) take a daily oral contraceptive pill; or (b) take a monthly injection of a GnrH agonist; or (c) have their testes surgically removed (a ‘gonadectomy’)’, reads Briefing Notes on the Rules published by World Athletics. ‘It is their choice whether or not to have any treatment, and (if so) which treatment to have. In particular, the IAAF does not insist on surgery. The effects of the other two treatments are reversible if and when the athlete decides to stop treatment. Importantly, lowering testosterone in one of these ways is the recognised ‘gender-affirming’ standard of care for any individual (athlete or not) who is 46 XY but has a female gender identity.’

As explained above, the SFT couldn’t make any determination about whether it was ethical to require a 46 XY DSD athlete who is not unwell to take a contraceptive pill designed for 46 XX karyotype females. The CAS did recognise this issue, and found that there were serious side effects on 46 XY DSD individuals who used contraceptive pills designed for XX females to lower their endogenous (internally produced) testosterone to below 10 nmol/L (the DSD Rules set an upper limit of 5 nmol/L).

‘Ms. Semenya described the negative effects that the testosterone-suppressing medication had on her mental and physical health’, reads para.78 of the CAS Decision. ‘Her symptoms included becoming hot and sweating profusely each night and experiencing significant weight gain. She also felt sick constantly, suffered from regular fevers and had constant internal abdominal pain. These symptoms also had an “enormous” effect on her mental state, impeding her mental sharpness and undermining her self-confidence.’

In the XY karyotype, testosterone is the only hormone driving the endocrine system that regulates an individual’s physiology. Therefore, it is understood that reducing it is likely to make people unwell. As the CAS and SFT decisions recognise, XY karyotype individuals typically have circulating testosterone between 7.7 nmol/L to 29.4 nmol/L. 

Of course, reducing this to 5 mol/L will make an XY karyotype athlete slower. This is because the only natural hormone driving the XY karyotype endocrine system, which supports their physiology, has been seriously curtailed. The same effect cannot be replicated in the XX karyotype, since three hormones drive the endocrine system and a much lower baseline level of testosterone (0.06 nmol/L to1.68 nmol/L) exists in the first place. 

This is why testosterone deficiency is a recognised as a medical condition that can make XY karyotype people unwell. DSD athletes are XY karyotype, as the IAAF made clear during its arguments against Semenya’s appeal at the CAS. Other XY karyotype athletes, such as Kristen Worley and Sloan Teeple, have also been made unwell due to sport’s rules on testosterone, as have certain DSD athletes who underwent a horrific experience ahead of the London 2012 Olympics. Shockingly, the IAAF used the experience of these medically damaged athletes as evidential support that the DSD Regulations are effective in making 46 XY DSD athletes slower!

Unlike XY karyotype individuals who are transitioning to become XY females, 46 XY DSD athletes usually do not wish to change their physiology through hormonal modification. Their testosterone levels are not ‘elevated’, to borrow World Athletics’ description, but are normal for their karyotype. World Athletics requires them to reduce the primary stimulus for their endocrine system to levels consistent with the XX karyotype in order to compete in events run between 400m and one mile in its female category. 

World Athletics requires 46 XY DSD athletes to undergo potentially damaging hormonal treatment to compete in its female category. Arguably, it requires athletes to ‘feminise’ themselves.

As explained above, this is likely to make 46 XY karyotype athletes unwell, although the SFT didn’t have to examine whether the CAS had assessed this danger sufficiently. Nowhere in the DSD Regulations, or in the Explanatory Notes, is there any mention of measures taken to monitor an athlete’s health after her natural testosterone levels are reduced to below 5 nmol/L.

Show me the science

As detailed in this article, there were two major pieces of scientific evidence used to support the DSD Regulations. The first is 2017’s Paper One, entitled ‘Serum androgen levels and their relation to performance in track and field: mass spectrometry results from 2127 observations in male and female athletes’. Paper Two, published in 2018, is ‘Circulating Testosterone as the Hormonal Basis of Sex Differences in Athletic Performance’.

Paper One has a number of significant issues, discussed in this article under ‘Scientific evidence on performance advantage’. In short, the Paper found a correlation between XX karyotype females with elevated free testosterone and performance at the Daegu 2011 and Moscow 2013 IAAF World Championships, events which were marred by doping. Among the 1,332 female observations in the study, just nine were 46 XY DSD.

Paper Two also has a number of significant issues, detailed under ‘The 2018 Study’ in this article. In short, evidence for increases in muscle mass and strength appear to come from a 2014 Study performed on 62 XX karyotype post-menopausal women (mean age, 53) who had undergone a hysterectomy; it references several other studies in order to support the proposition that DSD athletes benefit from increases in circulating testosterone that increases circulating haemoglobin, which in turn translates to an increase in oxygen transfer; and compares endogenous testosterone levels with increases in muscle mass and strength.

One of the studies it relies on is a 2017 Study examining women with Congenital Adrenal Hyperplasia (CAH), a condition in which the adrenal gland can produce more testosterone. The Study found that in women with CAH, erythropoiesis may be driven by androgens. The proposition is that as DSD athletes have higher levels of testosterone (an androgen), they benefit from increased erythropoiesis (production of oxygen-carrying red blood cells). 

On 9 January 2019, shortly before the CAS hearing on 26 February, the IAAF removed CAH and a CAH variant from the scope of the Regulations. It did so because, in the IAAF’s words, ‘individuals with these DSDs only have high testosterone levels if their adrenal conditions are uncontrolled, in which case they would suffer side-effects that would make elite sports performance impossible’. 

Yet as explained above, a study examining XX karyotype women with CAH had been used as part of the IAAF’s evidence base in support of the Regulations. It would appear that by carving XX karyotype women and CAH out from the scope of the Regulations, the IAAF negated part of its own evidence base. 

There is more information about scientific inaccuracies in the evidence used to support the DSD Rules here; here; and here. In addition, as previously mentioned, World Athletics used data from athletes medically damaged by its Hyperandrogenism Regulations – the forerunner to the DSD Rules – to prop up the DSD Rules. 

The issue is not that World Athletics hasn’t proven that 46 XY karyotype athletes can run faster or throw further than 46 XX karyotype athletes. Anybody with access to Wikipedia can do that. It is whether World Athletics has proven that by virtue of the effects of testosterone on the 46 XY DSD physiology from puberty onwards, 46 XY DSD athletes have been able to develop an advantage that is so significant that it should be considered unfair in the specific international female events that World Athletics targets. It is here that scientists argue World Athletics falls short (see the Twitter threads here and here).

Moving the goalposts

As already mentioned, today’s DSD Rules are not the same as the DSD Regulations that Semenya challenged. The IAAF amended the DSD Regulations both before and after the CAS heard Semenya’s case against them. The result was that shortly before the CAS hearing, the DSD Regulations applied to five disciplines rather than the seven referred to in the CAS judgment.

World Athletics even sent a lawyer to Play The Game 2019. The lawyer didn’t participate in a debate about the science underpinning the DSD Regulations, but distributed a pre-prepared Paper attacking the presenters and their arguments. Anyone interested in whether World Athletics succeeded should read this article.

The World Athletics Paper references ‘recent research’ involving the administration of 10mg of testosterone cream daily to athletes. The research found that athletes who administered the cream performed better. Of course they did. This is doping.

A person doped with testosterone is getting something extra. Testosterone doesn’t discriminate. If you administer testosterone, an athlete’s physiology has something that it didn’t have before. Everyone knows this. It is the reason why the application of exogenous (external) testosterone is prohibited in sport. 

The same is not true for 46 XY DSD athletes. Their testosterone levels are endogenous (internal), and are their hormonal normal. 

The forerunner to the DSD Rules were the Hyperandrogenism Regulations. The CAS allowed the IAAF to terminate Dutee Chand’s case against them by promulgating the DSD Regulations. That the CAS would allow a serious grievance to be terminated by simply promulgating new Regulations should ring alarm bells for anyone interested in jurisprudence. 

The CAS Decision also raised questions about whether athletes had given their consent for samples collected for anti-doping purposes to be used for gender verification purposes. As previously reported, the 2021 World Anti-Doping Code has been amended to allow anti-doping samples to be used in this way. Up until 2019, the World Anti-Doping Agency’s International Standards (ISL) prohibited such use.

The Hyperandrogenism were promulgated in May 2011. Article 6.3 of the World Anti-Doping Agency’s (WADA) 2012 International Standard for Laboratories (ISL) mandates that written consent is required from any athlete for a sample collected for anti-doping purposes to be used in any other way. ‘No Sample may be used for any purpose other than as described in Article 6.2 without the Athlete’s written consent’, it reads. ‘Samples used for purposes other than Article 6.2 shall have any means of identification removed such that they cannot be traced back to a particular Athlete’.

Such a prohibition was repeated in the 2015 ISL, but is not present in the 2019 ISL. However, Annex 2.1 of the 2019 ISL mandates: ‘The Laboratories and WADA-Approved Laboratories for the ABP shall follow the Helsinki Accords and any applicable national standards as they relate to the involvement of human subjects in research. Voluntary informed consent shall also be obtained from human subjects in any drug administration studies for the purpose of development of a Reference Collection or proficiency testing materials.’

‘In medical research involving human subjects capable of giving informed consent, each potential subject must be adequately informed of the aims, methods, sources of funding, any possible conflicts of interest, institutional affiliations of the researcher, the anticipated benefits and potential risks of the study and the discomfort it may entail, post-study provisions and any other relevant aspects of the study’, reads Article 26 of the World Medical Association’s (WMA) Helsinki Declaration. ‘The potential subject must be informed of the right to refuse to participate in the study or to withdraw consent to participate at any time without reprisal. Special attention should be given to the specific information needs of individual potential subjects as well as to the methods used to deliver the information.

‘After ensuring that the potential subject has understood the information, the physician or another appropriately qualified individual must then seek the potential subject’s freely-given informed consent, preferably in writing. If the consent cannot be expressed in writing, the non-written consent must be formally documented and witnessed.’

The IAAF’s Competition Medical Guidelines (click here to download) also emphasise that they comply with the Helsinki Declaration. The CAS Decision in Semenya’s case highlights serious questions as to whether athletes provided consent for their anti-doping samples to be used in Paper One. ‘The IAAF relies on the initial consent provided for doping control purposes’, reads the Decision. ‘ASA repeatedly asked the IAAF to disclose copies of the signed consent forms provided by the athletes whose samples and data form the basis of the analysis in BG17 [Paper One]. The IAAF has declined to do so. The Panel considers that it can therefore be inferred that no such forms exist, or that if they do exist they do not assist the IAAF on this issue.’

It would therefore appear that World Athletics relied on evidence obtained from athletes in breach of WADA’s ISL, its own Competition Medical Guidelines and the WMA’s Helsinki Declaration in order to support the DSD Rules. This would also appear to invalidate part of its evidence base, but the CAS Panel didn’t consider this to be important, and the SFT didn’t assess the reliability of the evidence in support of the Rules.

The United Nations, Human Rights Council, and the WMA itself have already expressed concern about this. In September 2018, the Human Rights Special Procedures body of the United Nations wrote to Sebastian Coe, President of World Athletics. Three UN Special Rapporteurs for physical and mental health; torture; and discrimination against women highlight ‘serious concerns’ that the DSD Regulations:

• Contravene human rights standards and norms;
• do not present evidence justifying that they pursue a legitimate aim;
• are not reasonable and objective;
• do not demonstrate proportionality between their aim and effects.

World Athletics’ response was to accuse the UN of not understanding its Rules. ‘It is clear that the author is not across the details of the IAAF regulations nor the facts presented recently at the Court of Arbitration for Sport’, wrote World Athletics in a statement to the BBC, after the UN Human Rights Council reiterated its concerns in March last year. ‘There are many generic and inaccurate statements contained in the motion presented to the UN Human Rights Council so it is difficult to work out where to start’.

In July this year, the Human Rights Council urged UN Member States to prohibit the enforcement of the DSD Rules. Its Report was unequivocal that the DSD Rules represent an infringement of the right for athletes with a DSD to compete. ‘The implementation of female eligibility regulations denies athletes with variations in sex characteristics an equal right to participate in sports and violates the right to non- discrimination more broadly’, it outlines.

In May last year, the WMA reiterated its advice to physicians not to implement the DSD Rules. “We have strong reservations about the ethical validity of these regulations”, said WMA President Dr. Leonid Eidelman. “They are based on weak evidence from a single study, which is currently being widely debated by the scientific community. They are also contrary to a number of key WMA ethical statements and declarations, and as such we are calling for their immediate withdrawal.”

“Caster’s legal defeat is not a victory for World Athletics, nor does it legitimize the CAS or global sport’s ‘system of justice’”, said Brendan Schwab, Executive Director of the World Players Association (WPA), in a statement. “Despite the World Athletics eligibility regulations being condemned as a violation of the human rights of athletes by authorities as eminent as the United Nations High Commissioner for Human Rights (UNHCHR), Caster’s human rights could not be properly considered at any stage of the process. In the same report the UNHCHR has identified how sport’s justice system systemically denies athletes of their right to an effective remedy where their human rights have been violated.

“World Athletics flagrantly maintains that, as a private body, it has no responsibility to respect Caster’s internationally recognised human rights. It argued that her rights are to be primarily determined in accordance with the Constitution of World Athletics and the Olympic Charter of the International Olympic Committee (IOC), neither of which uphold the human rights of athletes.”

Herein lies the problem. Sport’s closed arbitration system allowed World Athletics to avoid all of these serious issues, raised by major international bodies, and to welcome the SFT’s inability to consider them as a victory.

Thin end of the wedge

Nobody is arguing that World Athletics shouldn’t be able to exclude ‘male’ athletes from certain ‘female’ categories. World Athletics clearly thinks is approach to its DSD Rules is in line with this proposition, otherwise it wouldn’t have spent so much time, effort, and money defending it. If ‘male’ athletes were inclined to compete in female sport, they would dominate it (although there is no evidence that anyone who identifies as a ‘man’ has ever sought to compete in ‘female’ sport).

Given what we know about determination to win and doping, it isn’t unreasonable to assume that unscrupulous coaches would seek out DSD athletes in order to win, as Paula Radcliffe highlighted. World Athletics is right to point to the prevalence of DSD athletes in the Restricted Events as evidence that they may hold an advantage over XX karyotype athletes who have not benefitted from testosterone’s action on their physiology from puberty onwards.

But is such an advantage ‘unfair’? World Athletics thinks so. It is ‘category defeating’, to borrow its grandstand term. But it doesn’t appear to have done any other research as to how ‘unfair’ the advantage is compared to other advantages within the Restricted Events. The playing field is never level in any sporting event. Does height or stride length also confer an advantage in the Restricted Events? 

Nobody is saying that World Athletics shouldn’t be free to exclude ‘male’ athletes from its ‘female’ categories. However, the danger is that by pegging rules on who can compete in its female category to natural testosterone levels, World Athletics risks making people ill. World Athletics is effectively saying to a 46 XY DSD athlete: use medication not designed for your physiology to reduce your natural hormonal levels, otherwise you cannot compete internationally in our restricted events as a female.

In addition, some of the Restricted Events appear to be arbitrary, leading to conjecture that the DSD Rules are designed to target Caster Semenya. World Athletics refused to listen to the CAS when it asked it to consider deferring the application of the Rules to the 1,500m and one mile events, due to lack of evidence. But this didn’t trouble the SFT.

‘Although the CAS has expressed concerns about the inclusion of these two test events in the DSD Rules and indicated that the IAAF might consider deferring the application of this rule to such events, it nevertheless considered that the IAAF had provided evidence for all “covered events”, as well as a rational explanation as to how this category was defined’, reads the SFT Decision. ‘In these circumstances, this result cannot be qualified as contrary to public order’.

The problem is that the pegging of eligibility rules in female categories to natural testosterone levels doesn’t end with events run between 400m and one mile, or with the DSD Rules. The CAS Decision permitted World Athletics to add further events to the Rules in the future. ‘The majority of the Panel observes that it may be that, on implementation and with experience, certain factors, supported by evidence, may be shown to affect the overall proportionality of the DSD Regulations, either by indicating that amendments are required in order to ensure that the Regulations are capable of being applied proportionately, or by providing further support for or against the inclusion of particular events within the category of Restricted Events’, read an Executive Summary of its Decision.

Transgender females are currently not permitted to use testosterone at levels above 10 nmol/L if they are to be permitted to compete in female sport. Now that World Athletics has got its DSD Rules over the line, they also face the possibility that permissible limits will be reduced, potentially making them ill.

This is why nothing has changed with the SFT ruling. Realistically, I don’t think that anybody expected Caster Semenya to prove that the CAS Decision violates Swiss public policy.

What the SFT decision has highlighted, for athletes, is that appealing such issues through sport’s closed arbitration system is pointless. The CAS allowed the IAAF to amend the DSD Rules before, during, and after its hearing. It held that the Rules are discriminatory and despite this, the IAAF was able to ignore its warning about the inclusion of the 1,500m and one mile events due to lack of evidence without repercussion. The SFT held that none of this qualifies as a threat to Swiss public policy. Case closed.

Kristen Worley was only successful in her appeal that International Olympic Committee (IOC) policies had infringed her human rights by taking her case outside of sport’s closed arbitration system. Claudia Pechstein was only partially successful by taking her case to the European Court of Human Rights (ECHR), which forced the CAS to open its hearings to the public. This has not gone well so far. 

It would appear that World Athletics doesn’t want to face similar battles to the Semenya case in the future. ‘The decision of the CAS will be final and binding on all parties, and no right of appeal will lie from that decision’, reads Article 5.5 of the DSD Rules. ‘All parties waive irrevocably any right to any form of appeal, review or recourse by or in any court or judicial authority in respect of such decision, insofar as such waiver may be validly made’. Perhaps World Athletics knows that the CAS provides a sensitive ear.

The SFT decision doesn’t bring us any closer to ascertaining whether it is ethical for World Athletics to require 46 XY DSD females to self medicate their natural biology in order to be eligible for certain international female events. Caster Semenya was brought up as a woman, lives as a woman and is legally recognised as a woman, as the DSD Rules require. The action of testosterone on her XY karyotype has provided her with a distinct advantage, but it is an advantage she has had to work on throughout her life, just as other athletes play to their strengths. Is it right to penalise all DSD women for her success?

This is the second and final part of the ‘Real Madrid Saga’. Where the first part outlined the background of the case and the role played by the Spanish national courts, the second part focuses on the EU Commission’s recovery decision of 4 July 2016 and dissects the arguments advanced by the Commission to reach it. As will be shown, the most important question the Commission had to answer was whether the settlement agreement of 29 July 2011 between the Council of Madrid and Real Madrid constituted a selective economic advantage for Real Madrid in the sense of Article 107(1) TFEU.[1] Before delving into that analysis, the blog will commence with the other pending question, namely whether the Commission also scrutinized the legality of the operation Bernabeú-Opañel under EU State aid law. By way of reminder, this operation consisted of Real Madrid receiving from the municipality the land adjacent to the Bernabéu stadium, while transferring in return €6.6 million, as well as plots of land in other areas of the city. 

The Commission’s ‘pragmatic’ solution regarding the Operation Bernabéu-Opañel

As was explained in part 1 of this blog, during the formal investigation period (i.e. from 18 December 2013 until 4 July 2016), the operation Bernabéu-Opañel (referred to by the Commission as the ‘2011 urban development agreement’) was firstly suspended by the Madrid High Court (31 July 2014) and later completely annulled (2 February 2015) by that same Court. It is worth reiterating that the Court believed there to be a sufficient link between the 2011 settlement agreement and the operation Bernabéu-Opañel in order to examine the agreements together.[2]

The Commission, however, was actually surprisingly brief on this matter. As can be read from paragraphs 79 and 80 from the decision, “(a)s a result of (the judgment of 2 February 2015), the 2011 urban development agreement has been cancelled between the parties. Consequently, that agreement will no longer be implemented so that the Commission assessment of the 2011 urban development agreement has become without object. The present Decision therefore only examines the 2011 settlement agreement under State aid rules”.[3]

From an EU State aid law perspective, declaring the operation Bernabéu-Opañel “without object” makes sense. With the agreement annulled, there has been no transfer of resources from the State to Real Madrid of any sorts, nor could Real Madrid have obtained an economic advantage from an annulled agreement. Therefore, removing all the problematic aspects of the agreement from a State aid perspective. Yet, it does remain slightly ironic that that the ‘standstill obligation’ was applied to an agreement that was later on never analysed by the Commission. True, the subsequent annulment (based solely on Spanish administrative law) made Commission scrutiny redundant, but one does wonder what the Commission would have decided had the Madrid Court not annulled the operation. 

The 2011 settlement agreement under Article 107(1) TFEU

By way of reminder, in the opening decision, the Commission primarily doubted whether:

1) It was impossible for the Council of Madrid to transfer the Las Tablas property to Real Madrid;

2) This legal impossibility automatically led to an obligation for the Council of Madrid to compensate Real Madrid;

3) A market value of the Las Tablas plot of land has been sought;

4) And whether the value of the properties which were transferred to Real Madrid by the 2011 settlement agreement were market conform.[4]

In reaction to the opening decision Spain argued that transferring the plot in Las Tablas was illegal based on the local urban law 9/2001 of 2001, this interpretation was later confirmed by the Spanish High Court in 2004. Yet, this was already the case in 1998 when the Madrid Council agreed to transfer the land to Real Madrid.[5] Given that Real Madrid had legitimate expectations that it was the owner of the land, it has suffered damages as a consequence of the transfer’s invalidity. As a consequence, Real Madrid needed to be compensated by an amount equal to the market value of Las Tablas in 2011, namely €22.693.054,44. Since this sum was calculated on the basis of an objective model set by the Ministry of Economy and Industry[6], Spain considered that it matched the market value and could not constitute State aid.

The economic advantage criterion according to the market economy operator principle

The Commission’s State aid assessment essentially revolved around the question whether the 2011 settlement agreement between the Council of Madrid and Real Madrid resulted in an economic advantage to the benefit of Real Madrid.[7] As is standard Commission practice[8], “to determine whether a particular transaction carried out by a public authority has been carried out in line with normal market conditions, it is necessary to compare the behaviour of that public authority with that of a similarly situated hypothetical “market economic operator” operating under normal market conditions. If the “market economy operator” would have entered into that transaction under similar terms, then the presence of an advantage may be excluded as regards that transaction”.[9] Referring to EU case law[10], the Commission argued that a prudent market operator would carry out his own ex ante assessment on the basis of sound economic and legal evaluations, when entering such transactions. Public authorities cannot claim that evaluations made after the transaction, based on a retrospective finding that it was actually economically rational, like the Madrid Council did in this case, is the course of action that a prudent market operator would take under similar circumstances.[11]

In continuation, the Commission indicated the two criteria it used in order to determine whether the amount of compensation offered to Real Madrid was in line market conditions:

1) The probability that the Madrid Council would be held liable for its inability to perform its contractual obligations;

2) And the maximum extent of its financial exposure resulting from finding such a liability.[12]

Though these criteria are clearly cumulative, it should be noted that the Commission did not support the criteria with a reference to case law, its own decisional practice or documents of (soft) law. Be that as it may, based primarily on these criteria the Commission concluded that a market economy operator in a similar situation to the Madrid Council would not have entered into the 2011 settlement agreement.

As regards the first criteria, the Commission argued that the Madrid Council should have sought legal advice so as to establish the likelihood that it was indeed liable for not performing its contractual obligations. Without legal advice, the Commission found it hard to believe that a prudent market operator would have assumed full legal liability, especially considering “the legal uncertainties surrounding the potential impossibility to perform (the land transaction), the legal consequences of that potential impossibility, and the Madrid Council’s ability to remedy that legal impossibility through other means”.[13] The Commission seems definitely correct in questioning the chain of events that eventually led to the compensation of more than €20 million. Even though, as Spain now claims[14], it was already legally impossible to transfer the land in 1998, why did the Madrid Council sign this agreement in the first place? After the introduction of local urban law 9/2001, shouldn’t the parties have been aware of the legal impossibility at that moment, or in any case after the 2004 judgment of the Madrid High Court? Consequently, why did the Council wait until 2011 before compensating Real Madrid? In paragraphs 103 and 104, the Commission also drew an interesting comparison with the operation Bernabéu-Opañel. Although this latter operation was declared void by a Spanish Court for not being in line with the general interest, it simultaneously shows that reclassifying a terrain from public to private (sport) use is not entirely legally impossible. In other words, by analogy, the plot in Las Tablas could have been reclassified for private use (provided the reclassification served the general interest) and be legally transferred to Real Madrid.

With regard to the second criteria, i.e. the maximum extent of the Madrid Council’s financial exposure resulting from finding such a liability, the Commission firstly argued that the different valuations of 1998 and 2011 of the land in Las Tablas were based on the mistaken assumption that this land could have been transferred in 2011, which, in hindsight appeared to be legally impossible. “Assuming the Madrid Council could not be held liable for that legal impossibility, for which it never solicited legal advice, it is at least arguable that the market value of the plot in its relationship with Real Madrid would be zero, since the land in question cannot be transferred”.[15] On the other hand, and assuming the Madrid Council is liable and Real Madrid had a right to a compensation, this amount should have been way less than €22 million as a Commission-assigned study concluded. Taking into account the Commission’s consideration that the correct parameter for the valuation of the concerned plot is the long-term exploitation of the land for sport use, the study arrived at a valuation in 2011 of €4.275 million.[16]

For all the above reasons, the Commission established that the Madrid Council had not acted as a prudent market operator. It had not sought legal advice before entering the 2011 settlement agreement, and the subsequent compensation granted to Real Madrid too high. In conclusion, by means of the 2011 settlement agreement, a selective economic advantage was granted to Real Madrid and the State aid criteria of Article 107(1) TFEU were fulfilled. As a result, the amount of aid that Spain was required to recover from the football club amounted to €18.418.054,44 (€22.693.054,44 - €4.275.000) plus interests.[17]

The aftermath

On 2 September 2016, the municipality of Madrid officially ordered Real Madrid to repay €20.3 million, an obligation complied with by the club in early November. Nonetheless, the Real Madrid ‘saga’ has not come to an end. In fact, now that Real Madrid’s appeal is registered by the CJEU, it has become clear that it could take several more years until the case is finally closed. The pending questions are; what are the grounds of Real Madrid’s appeal and could the appeal be successful?

As a preliminary remark, neither Spain nor Real Madrid have claimed that the 2011 settlement agreement falls, or could fall, under one of the exceptions of Article 107(3) TFEU. In principle, this does not prevent Real Madrid from advancing a compatibility plea in front of the General Court, even though it did not raise the argument during the formal investigation.[18] Nonetheless, given the Commission’s wide discretion in applying the exceptions of Article 107(3)[19], the review of the legality of its decision is restricted to determining whether the Commission committed a manifest error in its assessment of the facts or misused its powers.[20] Moreover, as the Commission indicates in paragraph 135 of the decision, the aid granted to Real Madrid is considered as operating aid.[21] In other words, the aid releases an undertaking from costs which it would normally have to bear in its day to day activities.[22] Both the Commission and the CJEU have been very reluctant in permitting operating aid since it rarely facilitates the development of certain economic activities without adversely affecting trading conditions.[23]

In a press-release following the Commission’s announcement of its recovery decision, Real Madrid inter alia argued that the valuation method used in the 2011 settlement agreement is the “only objective method, as it is based in the cadastral value, legally obliging for all Spanish City Councils, and therefore is applied in all transaction between City Councils and third parties whether they are public or private”.[24] The Commission’s final decision takes note of the criticism expressed by Real Madrid regarding the Commission-assigned valuation study, especially concerning the (in its eyes erroneous) valuation method used for the study.[25] Though the Commission rebutted Real Madrid’s criticism[26], it will be up to the General Court of the EU (and potentially later the Court of Justice) to decide whether the Madrid Council used the correct valuation method when determining the 2011 value of las Tablas. This will not be completely new territory for the General Court, given the rich jurisprudence available on valuation methods.[27] As regards the standard of review applied by the General Court, Conor Quigley argues that “where the Commission is found by the Court to have committed a sufficient error of assessment, the decision will be annulled”.[28] It is settled EU case law, that the valuation method must be based on the available objective, verifiable and reliable data, which should be sufficiently detailed and should reflect the economic situation at the time at which the transaction was decided, taking into account the level of risk and future expectations.[29] The General Court remains, however, entitled to fully review and assess the valuation methods presented by the Commission and the interested parties.[30]

The Real Madrid case is too complex and intertwined to draw definitive conclusions on the possible outcome of the appeal. Nonetheless, the thorough State aid assessment conducted by the Commission in its decision should not be underestimated. This will be a tough “legal match” on an entirely new turf for Real Madrid.

[1] By way of reminder, Article 107(1) TFEU reads: “Save as otherwise provided in the Treaties, any aid granted by a Member State or through State resources in any form whatsoever which distorts or threatens to distort competition by favouring certain undertakings or the production of certain goods shall, in so far as it affects trade between Member States, be incompatible with the internal market”.

[2] See Oskar van Maren, “The EU State aid and sport saga: The Real Madrid Decision (part 1)”, Asser International Sports Law Blog, 15 November 2016.

[3] Commission decision SA.33753 of 4 July 2016 on the State aid implemented by Spain for Real Madrid CF, paras. 79 and 80.

[4] Commission decision SA.33753 of 18 December 2013, State aid– Spain Real Madrid CF, paras. 41-43.

[5] Interestingly enough, Spain’s comments contradict Real Madrid’s comments, according to which, as can be read in paragraph 46 of the decision, Spanish law did allow Las Tablas to be reclassified for private use in 1998 and beyond until a specific law that prohibits that was introduced in 2001.

[6] Commission decision SA.33753 of 4 July 2016 on the State aid implemented by Spain for Real Madrid CF, paras. 29-36.

[7] Since it was clear State resources were transferred, that the measure was selective and that it at least had the potential of affecting intra-Union trade, the other criteria of Article 107(1) TFEU were only briefly discussed.

[8] See also e.g. Commission decision SA.41613 of 4 July 2016, on the measure implemented by the Netherlands with regard to the professional football club PSV in Eindhoven.

[9] Commission decision SA.33753 of 18 December 2013, State aid– Spain Real Madrid CF, para. 88.

[10] Case C-124/10 P Commission v. EDF ECLI:EU:C:2012:318, paras. 84, 85 and 105.

[11] Commission decision SA.33753 of 18 December 2013, State aid– Spain Real Madrid CF, para. 89.

[12] Ibid, para. 92.

[13] Ibid, para. 94.

[14] Ibid, para. 29.

[15] Ibid, para. 108.

[16] Ibid, paras. 111-112.

[17] Ibid, paras. 139-142.

[18] See for example T-110/97 Kneissl Dachstein v Commission ECLI:EU:T:1999:244, para. 102.

[19]Case T-304/08 Smurfit Kappa Group v Commission ECLI:EU:T:2012:351, para. 90.

[20] Conor Quigley, “European State Aid Law and Policy”, Hart Publishing, 3^rd edition (2015), pages 738-739. See also for example T-20/03 Kahla/Thüringen Porzellan v Commission, ECLI:EU:T:2008:395, para. 115.

[21] Commission decision SA.33753 of 18 December 2013, State aid– Spain Real Madrid CF, para. 135.

[22] See for example Case C-172/03 Heiser ECLI:EU:C:2005:130, para. 55.

[23] Quigley, page 276.

[24] Real Madrid further found it surprising that the Commission used a valuation made by an architect’s office in Barcelona to dictate their decision. Though many will find this comment by Real Madrid rather amusing, it once again shows that the rivalry between the two clubs (and cities) far exceeds the performances on a football field.

[25] Commission decision SA.33753 of 18 December 2013, State aid– Spain Real Madrid CF, para. 89.

[26] Ibid, paras. 119-128.

[27] See for example T-366/00 Scott v Commission ECLI:EU:T:2007:99; and C-239/09 Seydaland Vereinigte Agrarbetriebe ECLI:EU:C:2010:778.

[28] Quigley, page 737. Based on the case law of the Court, it is not entirely clear whether a “sufficient error of assessment” by the Commission is enough for the Court to annul the decision.

[29] T-366/00 Scott v Commission ECLI:EU:T:2007:99, para. 158. See also Commission Notice C 262/1 of 19 July 2016 on the notion of State aid as referred to in Article 107(1) of the Treaty on the Functioning of the European Union, para. 101.

[30] Case T-274/01 Valmont v Commission ECLI:EU:T:2004:266.

FIFA’s Third-Party Ownership (TPO) ban entered into force on the 1 May 2015[1]. Since then, an academic and practitioner’s debate is raging over its compatibility with EU law, and in particular the EU Free Movement rights and competition rules. 

The European Commission, national courts (and probably in the end the Court of Justice of the EU) and the Court of Arbitration for Sport (CAS) will soon have to propose their interpretations of the impact of EU law on FIFA’s TPO ban. Advised by the world-famous Bosman lawyer, Jean-Louis Dupont, Doyen has decided to wage through a proxy (the Belgian club FC Seraing) a legal war against the ban. The first skirmishes have already taken place in front of the Brussels Court of first instance, which denied in July Seraing’s request for provisional measures. For its part, FIFA has already sanctioned the club for closing a TPO deal with Doyen, thus opening the way to an ultimate appeal to the CAS. In parallel, the Spanish and Portuguese leagues have lodged a complaint with the European Commission arguing that the FIFA ban is contrary to EU competition law. One academic has already published an assessment of the compatibility of the ban with EU law, and many practitioners have offered their take (see here and here for example). It is undeniable that the FIFA ban is per se restrictive of the economic freedoms of investors and can easily be constructed as a restriction on free competition. Yet, the key and core question under an EU law analysis, is not whether the ban is restrictive (any regulation inherently is), but whether it is proportionate, in other words justified.

I will first present the key arguments of the opponents of the ban, before offering my own assessment. As the reader might know, I am no friends of FIFA and a staunch critic of its bad governance syndrome. Although I am convinced that FIFA’s governance deserves a ground-up rebuilt, I also believe that FIFA’s TPO ban is justified.

I.               Antithesis: FIFA’s TPO ban is contrary to EU law 

The legal waters are very much chartered insofar as the question of the application of EU law to FIFA’s TPO ban is concerned.[2] The key legacy of the CJEU’s jurisprudence on sport, starting with the Bosman ruling, is that FIFA’s regulations do not escape the reach of EU law and that they must be subjected to a proportionality control of the restrictions they impose on economic freedoms. The fundamental question with respect to the TPO ban is then whether it will be deemed justified and proportionate by the national courts, the CAS, the European Commission and ultimately the CJEU.

The opponents of the FIFA ban consider first and foremost that the practice of TPO (they usually prefer to refer to as Third-Party Investments or Third-Party Entitlements) is a legitimate financial investment practice, which is needed to sustain and raise the competitiveness of certain clubs. Basically if banks are reluctant to finance those clubs, then less risk-averse investors have to step in. Thus, they support investment in the training capacity of the clubs (especially in South America) and their capacity to take their chances in the most prestigious competitions (for example FC Porto or Atlético Madrid). Hence, TPO can be seen as a legitimate investment practice and its regulation left to the contractual freedom of the parties. Such a radical libertarian view is not often supported nowadays,[3] as the potential integrity risks of TPO are widely acknowledged.[4]

Instead, if the risks connected to TPO are to be tackled, it is argued that TPO should be properly regulated. In EU law jargon, this is labelled a less restrictive alternative.[5] The existence of a less restrictive alternative would point at the disproportionate nature of the FIFA ban. For example, a bundle of regulatory measures are suggested by the Spanish league (La Liga):

·      Prohibition of certain transactions based on the player's age;

·      Maximum percentage of participation in the "economic rights";

·      Quantitative limitations on the maximum number of players per club;

·      Maximum remuneration for the investor;

·      Prohibition of certain clauses that may limit the independence and autonomy of the clubs; and

·      Prohibition of transactions depending on the investor's particular status or business (or participation in the same) such as shareholders, directors and managers of the clubs.

The proposed regulatory changes would undeniably be an improvement with regard to the current situation. However, I do not believe they are sufficiently credible to undermine the legality of FIFA’s TPO ban.

II.             Thesis: FIFA’s TPO ban is compatible with EU law

A.    The necessity to tackle the integrity risks generated by TPO

First, we need to come back to the function and functioning of TPO deals. There is a reason why banks refuse to offer loans to certain clubs. They are often in difficult financial situations, their revenues do not add up with their expenses. Investment funds fill this gap, they replace banks in financially supporting these clubs. In return, they expect a modern version of the “pound of flesh”, a share of the transfer fee attached to a specific player. For a club, the TPO investments will only be fruitful while it is successful on the pitch and lucky in picking the players it recruits. It is a very risky bet on the future. In good times everybody wins, but in bad times the club is in deep trouble (see FC Twente’s fate). The TPO system works as a devil’s circle, the club is drawn into more and more TPO deals to stay financially viable.

Furthermore, TPO deals are not unlike the complex financial instruments that led to the terrible financial crisis of 2008. They give way to similar conflicts of interest. Where banks were selling derivatives based on subprime mortgages to their clients while betting against them at the same time, TPO funds might push their clients to recruit (thanks to loans they have generously provided for high interests) a mediocre player in which they already have a stake. Another option would be for a TPO fund, which is often (if not always) also acting as an agent, to force the departure of a player by triggering an offer which the club cannot refuse (or it would have to buy back the rights which is impossible due to its financial situation). The many hat(s) of TPO investment funds are extremely worrying in terms of conflicts of interest.[6] The most dangerous, though in my view less likely (but see the Tampere case), risk being that TPO investors would use their broad networks of influence to fix games. FIFA’s objective of curbing those risks is clearly a legitimate one.

The heart of the trade of TPO funds is to leverage the hubris of football clubs, to corner them into making a bad financial deal in return for a credible shot at winning a title. But once the high is over, the low starts and the awakening is rather uncomfortable. The high financial risks saddled to the club are sustainable only so long as it is a winner. As soon as its fate on the pitch turns, the bad news accumulates and not unlike a bank run the club crashes, while the investors have more often than not managed to escape before the fall. In short, unless you truly believe in the superpowers of the invisible hand of the market, this practice, as well as the financial practices that led to the financial crisis, deserves either a thorough regulation or an outright ban.

B.    Is there a realistic regulatory alternative to the ban?

The key question for the assessment of the TPO ban under EU law is whether the many negative externalities triggered by the use of TPO could be tackled by the way of a less restrictive encroachment on the economic freedoms of the investors/clubs than the FIFA ban. Critics of the ban have very much insisted on the existence of less restrictive regulatory alternatives and put forward some proposals. Yet, I am of the opinion that these alternatives are generally unworkable in the present context. The main reason being that FIFA is incapable to properly regulate and control the TPO investment market. This is due to the fact that FIFA does not dispose of the legal competence needed to force investment funds to disclose information. To do so, it must be empowered by governments to be able to cease the information wanted, which is unlikely. Some would object, that this could be done via the FIFA TMS system put in place to supervise international transfers. But it would be extremely difficult for FIFA to verify any complex set of contractual information entered into the TMS. The destiny of former article 18 bis of the FIFA Regulations on the Status and Transfers of Players (see the 2014 version here) is there to prove this point. Under article 4.2 of Annexe 3 of the FIFA RSTP 2014, Clubs were already supposed to provide a “Declaration on third-party payments and influence”. Nonetheless, in previous years, FIFA was unable to charge any club (except for Tampere in a match-fixing context and due to a local police investigation) on the ground that an investor was exercising undue influence, mainly because it lacked the knowledge needed to do so. This is exemplified in the case of the ERPA signed by Doyen and FC Twente, which was only partially disclosed to the Dutch Football Association.

If FIFA is powerless, how is it supposed to enforce the ban? Well here lies the crucial difference between a ban and complex regulation. A ban is simpler to enforce, as it is merely a black-or-white matter. FIFA will be able to rely on investigative journalists unearthing investment contracts linked to transfers. The mere existence of a TPO contract will lead to a dissuasive sanction, without the need to get into the nitty-gritty details of each case. It thus makes it easier for FIFA to control the use of TPO and to force investment funds to come out in the open and take charge of the management of a club if they wish to stay active on the transfer market. The higher probability of being caught linked to the use of TPO will most likely work as a strong deterrent for clubs to engage in such a financing practice. This is undeniably a blunt instrument, and in an ideal world a true regulation of the TPO market would be put in place and enforced, but this ideal world is not compatible with the pluralist and complex transnational legal setting in which the transfer system operates. The complex regulatory schemes proposed as substitute to the ban are very well intended, but they do not take into account the extreme difficulty (and costs) linked to their implementation. The fiasco of the old FIFA Players’ Agents Regulations illustrates the practical constraints that burden any regulation of the football transfer market.

C.    TPO is not compatible with the 2001 agreement between the European Commission and FIFA

There is a final argument in favour of the compatibility of the TPO ban with EU law, which is grounded in the 2001 agreement between FIFA, UEFA and the European Commission. As should be obvious by now, the existence of TPO is dependent on the existence of the FIFA transfer system. Such a transfer system is unknown in other industries (though one could very well imagine a transfer system for academics for example). In turn, the FIFA transfer system restricts the economic freedom of both clubs and players. The European Commission highlighted these restrictions during its investigation of the FIFA transfer system in the early 2000s. However, the Commission signed an agreement with FIFA and UEFA signalizing its support for a new (the current) FIFA transfer system in 2001 and put an end to its investigation. This support was conditioned on the idea that a form of transfer system was needed to maintain the contractual stability necessary to the existence of stable and successful teams.[7] This is the fundamental assumption that underlies the compatibility with EU law of the FIFA transfer system, and therefore the sheer existence of TPO. Yet, TPO as a practice is per se promoting contractual instability. Players have to change clubs for TPO investors to cash in on their investments. It is perfectly logical for TPO contracts to include various clauses strongly incentivizing clubs to sell their players. If not, they will have to bear the costs, for example, of paying a fee (usually the invested amount plus a healthy interest) in case the player leaves the club on a free transfer, or forcing the club to buy back at market rate the investors’ shares in the economic right of a player in case of an offer above a minimum price. For a cash-strapped club, e.g. a club that lost access to the banking system and has to turn to TPO investors, this is usually impossible and means that it will be forced to sell-on the player. In a way, TPO is a radical perversion of the deal stroke by FIFA/UEFA and the Commission. The transfer system was meant to ensure that contractual stability is secured in football, not to enhance contractual instability. This contradiction between TPO and the rationale conditioning the legality under EU law of the FIFA transfer system will necessarily bear on the EU Commission’s analysis of FIFA’s TPO ban.

Conclusion: TPO is a symptom, the transfer system is the problem

20 years of the Bosman case oblige, the case has been back in the news cycle this week (see here, here, and here). It is widely credited, or rather blamed, for having changed football for bad, turning it into some kind of commercial monster. I very much doubt this storytelling is right. It is based on a collective misreading of the case. Bosman took stock of a contemporary development in football at that time: the eagerness of the “football family” to commercialize its activities by primarily selling TV rights in a monopoly position. What Bosman is about, then, it is the regulation of this economic activity. Central questions are: How should the proceeds be distributed and especially who should bear the costs of ensuring competitive balance amongst the teams? Until Bosman the players were the main losers, they could not move freely across Europe and in some countries they could not transfer for free even after the end of their contracts. This situation was deemed an unjustified restriction on the player’s freedom by the Court. Nevertheless, and this is widely forgotten, Bosman is not about dogmatically ensuring that economic freedoms and a deregulated market always prevail. In fact, Advocate General Lenz was advocating as an alternative to the transfer system that the economic revenues derived from TV rights be shared more equally to ensure competitive balance.[8] This is obviously an important restriction on the economic freedom of clubs and leagues, yet the Court endorsed it as viable alternative.[9] Since then, the Court has repeatedly approved various type of sporting regulations restricting the economic freedoms of athletes or clubs.[10] After Bosman, FIFA and UEFA (supported by many clubs) insisted on maintaining a transfer system instead of the alternative suggested by Lenz and the Court. Despite the Commission’s aforementioned challenge of the legality of the FIFA transfer system, FIFA and UEFA were able to marshal the political support of the most influential Member States (France, Germany and the UK) in their bid to save the transfer system.[11] This led to the 2001 agreement and to the survival of the transfer system in its current form.

It is certainly ironical that the transfer system is based on the same legal principles denounced by UEFA and FIFA officials when they talk of slavery regarding TPO. This hypocrisy, rightly pointed out by the critics of the ban,[12] does not entail that the TPO ban is contrary to EU law, as they in turn seem to assume. However, it does imply that TPO as a practice is just the tip of the iceberg. In fact, it is a symptom, as well as the murky world of agents, of a global transfer market gone rogue. This is due mainly to the insistence of FIFA in transforming players into moveable assets included on the balance sheets of clubs. The transfer system is certainly not about contractual stability or the financing of training facilities. Indeed, FIFA is trumpeting the growing number of transfers each year (see this year’s celebratory press release here) and is very much dragging its feet as far as enforcing training compensations and solidarity payments is concerned.[13] Undoubtedly, there is some doublespeak going on. If clubs are forced to turn to TPO investors it is mainly because FIFA and UEFA (and the big clubs) have refused to put in place the necessary redistributive mechanisms to ensure a minimum of competitive balance as was advocated by the CJEU in the Bosman ruling 20 years ago (and by the EU Commission recently). Instead, they have put their faith into a transfer system that is neither correcting competitive imbalances nor guaranteeing contractual stability (a view supported by Stefan Szymanski on behalf of FIFPro). FIFA has lost control over its Frankenstein-like transfer system and it is desperately trying to rein its negative externalities with regulatory patches (e.g. UEFA’s Financial Fair-play Rules or FIFA’s TPO ban). In this regard, the TPO ban is unlikely to contravene EU law, but it is also unlikely to be a solution to the many problems caused by FIFA and UEFA’s handling of the post-Bosman football era.

[1] See FIFA Circular no. 1464 announcing the ban.

[2] This is well done by Johan Lindholm in his article: Can I please have a slice of Ronaldo? The legality of FIFA’s ban on third-party ownership under European union law.

[3] The Spanish Competition Authority comes close to such a view in its advisory opinion criticizing FIFA’s TPO ban. It states at page 6 (in Spanish): “Se ha de partir del hecho de que si el mercado ha facilitado la aparición de estas operaciones es porque una multitud de agentes (tanto clubs como jugadores), actuando de manera descentralizada, han considerado que es lo mejor para sus intereses. Por tanto, la prohibición del TPO resulta en una limitación de la capacidad de obrar y de la libertad de empresa, restringiendo el uso de una conducta que en principio es maximizadora de beneficios (o minimizadora de pérdidas).”

[4] Even though very reluctantly by the Spanish Competition Authority, see p.9-10.

[5] This is also the view of Johan Lindholm, he considers that “regulation is likely a legally more successful response to the perceived ills of TPO”.

[6] This is also true for other types of third party funding, for example in arbitration.

[7] This is in essence the meaning of paragraph 57 of the EU Commission’s rejection decision in the Affaire IV/36 583-SETCA-FGTB/FIFA. The paragraph states : « La protection des contrats pendant une période de durée limitée qui se traduit par des sanctions correspondant notamment à la suspension du joueur pendant une période de 4 mois à 6 mois (dans des cas de récidives) semble indispensable pour garantir la construction d’une équipe. Un club a besoin d’un temps minimum pour construire son équipe. Si un joueur pouvait rompre unilatéralement son contrat dès la première année et être transféré à la fin de la saison vers un autre club, sans aucune sanction autre que la compensation financière, son club d’origine n’aurait pas de possibilité de construire convenablement son équipe. Les sanctions visent donc à démotiver les joueurs de rompre unilatéralement leurs contrats pendant les deux premières années pour permettre l’existence d’équipes stables. En raison des spécificités du secteur en cause la durée de la période protégée et des sanctions semble être proportionnée aux objectifs légitimes quelles visent à atteindre. »

[8] See in particular paragraphs 218-234 of his Opinion.

[9] See para. 110 of the Bosman ruling.

[10] For example: Selection rules in Deliège; Transfer windows in Lehtonen; FIFA’s agent regulation in Piau; Doping sanctions in Meca-Medina; Training compensations in Bernard. The European Commission also recognised the legality of UEFA’s rule limiting the multiple ownership of clubs in ENIC.

[11] On this episode see Borja Garcia’s article, ‘The 2001 informal agreement on the international transfer system’.

[12] In his article Johan Lindholm criticizes this moral posture taken by FIFA and UEFA. He rightly points at its hypocrisy: “[…] a third party owning fifty percent of the economic rights to a player is the very height of moral corruption, but a club owning one hundred percent of the same right is not only perfectly acceptable but also applauded”.

[13] A recent study commissioned by the European Clubs Association (ECA) on the transfer market, shows (at page 88) that the solidarity payments are way below the 5% threshold imposed by the FIFA RSTP (reaching instead only 1,15% of the transfer fees).