Asser International Sports Law Blog

Our International Sports Law Diary
The Asser International Sports Law Centre is part of the T.M.C. Asser Instituut

Nudging, not crushing, private orders - Private Ordering in Sports and the Role of States - By Branislav Hock

Editor's note: Branislav Hock (@bran_hock)  is PhD Researcher at the Tilburg Law and Economics Center at Tilburg University. His areas of interests are transnational regulation of corruption, public procurement, extraterritoriality, compliance, law and economics, and private ordering. Author can be contacted via email: b.hock@uvt.nl.


This blog post is based on a paper co-authored with Suren Gomtsian, Annemarie Balvert, and Oguz Kirman.


Game-changers that lead to financial success, political revolutions, or innovation, do not come “out of the blue”; they come from a logical sequence of events supported by well-functioning institutions. Many of these game changers originate from transnational private actors—such as business and sport associations—that produce positive spillover effects on the economy. In a recent paper forthcoming in the Yale Journal of International Law, using the example of FIFA, football’s world-governing body, with co-authors Suren Gomtsian, Annemarie Balvert, and Oguz Kirman, we show that the success of private associations in creating and maintaining private legal order depends on the ability to offer better institutions than their public alternatives do. While financial scandals and other global problems that relate to the functioning of these private member associations may call for public interventions, such interventions, in most cases, should aim to improve private orders rather than replace them.

FIFA example – from gentlemen’s agreements to a rich global regulator

FIFA is the governing body for football (or soccer, as it is known in some countries). Founded in 1904 under Swiss law by seven football associations, just 40 years ago, FIFA was a small gentlemen's club with a staff of 11, far from politics, which produced little cash. Since then, it has evolved into a powerful organization generating billions of dollars in annual revenues through sales of media and marketing rights; now it employs hundreds. The rise of FIFA has been a continuous process that was made possible by the reluctance of states and supra-national organizations such as the European Union (EU) to intervene in the governance of sport, particularly football. Hence, supported by and benefitting from the special treatment of sports, FIFA filled the regulatory gap and strengthened its status as a private regulator.

Besides the rules of the game, FIFA’s legal order includes privately-designed rules of cooperation and a complex organizational structure that spans every involved party including players, clubs, coaches, managers, club investors, officials, sponsors, and spectators. The centerpiece of the relations regulated by the rules of FIFA are employment-related questions. Most importantly, FIFA’s Transfer Regulations create strong tensions between FIFA’s regulatory autonomy and public orders such as the sovereign jurisdictions of FIFA’s member associations and supra-national organizations. Tensions between different levels of employment rules are especially visible in matters related to equality and/or non-discrimination of workers, the treatment and qualification of minors, the freedom to choose employment, and the freedom of movement. For example, the inability of players to terminate their contracts without cause, before expiry and without paying compensation, is in stark contrast with traditional employment laws, according to which employees are free to end employment without cause by prior notice. Figure below illustrates the relationships between the different levels of “football ordering” and public ordering when it comes to labor rules.

The Relationship of Labor Rules in Football

Furthermore, FIFA has also private dispute resolution venues and sophisticated system of sanctions and incentives promoting compliance with the decisions of the private order’s dispute resolution bodies. Possible sanctions vary but they are leveraged by the monopoly power of FIFA. Consider the right of FIFA to suspend a member association for a specific period or expel it fully from FIFA for failure to comply with its obligations, including an obligation to comply with FIFA or CAS decisions. Given FIFA's monopoly, this, in fact, means that national teams and licensed clubs from the suspended or expelled country cannot participate in any organized game. As a consequence, FIFA has been able to maintain cooperation among all involved actors, yet, along with the increasing commercial dimension, the incentives of states and other public orders, particularly the EU, to intervene have grown.

Integrity vs. legal order

The fact that FIFA is undermined by corruption is nothing surprising. Prof. Alina Mungiu-Pippidi shows that the average public integrity in more than 200 countries whose soccer associations are the FIFA constituents “is just 5, on a scale where New Zealand has ten and Somalia 1” […] “Were FIFA a country, it would clearly not be in the upper half, but somewhere near Brazil, whose officials seem to have been waist deep in its corruption, and which ranks around 121, with a 4.2”. FIFA’s administrative structure, certainly, needs reforms that will improve its financial stability and decrease corruption risks within the organization. These reforms, indeed, may require “public nudge” by the enforcement of extraterritorial “anti-mafia” statutes such as the US Racketeer Influenced and Corrupt Organization Act (RICO) that played the central role in the so-called FIFAGate. Moreover, in the light of “the second FIFAGate”—six months after the original scandal, a number of FIFA officials that replaced the old leadership were charged with a 92-count indictment—and after the recent neutralization of its internal corruption investigations (see here), more radical “public nudge” may be desirable. Indeed, these developments, as was discussed in this blog some time ago, may call for a more powerful intervention by, for example, the EU, to impose ‘certain basic “constitutional” requirements’ to FIFA.

Nevertheless, while FIFA may need “public help” to clean its house and improve some areas of its legal order, no public order is a better alternative. Common rules spanning across borders, predictable contractual relations, and incentives to invest in training young players are only some advantages made possible by FIFA’s tailored rules of behavior. These advantages would be lost if public interventions would crash the FIFA order and replace it by a patchwork of national laws, unstable contractual relations, more costly dispute resolution and enforcement mechanisms, and limited ability to encourage talent development. Therefore, while FIFA as an administrative organization may generally be considered as more corrupt than an average government, it has been able to offer harmonized institutions that in many cases are better accustomed to the needs of the involved parties than their state-made alternatives, which often are based on one-size-fits-all approach and lack certainty of application.

Public orders as the reversed civil society

It does not mean that public orders such as the EU and nation states should do nothing. Private entities often need a “public nudge” not only to prevent excesses, but also to maintain incentives to produce rules that reflect new economic and social developments. In numerous writings (for an overview see Katz), law-and economics scholars indicate that while in principle private orders should be best left alone, states should limit the potential of powerful interest groups to undermine the roots of private orders such as FIFA. Who, how, and when should determine the benchmark of what is excessive is difficult, and law-and economics has declined to offer a general theory of the role of public orders in nudging private orders to limit interest groups’ power. Nevertheless, determining the role of public orders is no more difficult than the question what civil society should do when it comes to the performance of nation states.

In the context of nation states, the key role in limiting the power of elites belongs to the civil society. In case of monopolistic orders such as FIFA’s, however, there is often no direct representation of various actors inside such orders. Shouldn’t, then, states and the EU assume the role of a reversed civil society when interacting with large and successful private orders? In practice, particularly the EU is more and more involved in an informal co-determination of football-related regulation (for similar argument see here). For example, the recent social dialogue in European football, brokered by the EU Commission, is an example how public orders can fulfill their role as reversed civil society. The EU Commission, instead of intervening directly and regulating sports, encouraged, and should do so much more, various stakeholder groups, such as the European Club Association and FIFPro, to engage in a dialogue with the purpose of improving the practices of player protection (however, it is true that the EU Commission had a way deeper impact through EU competition law, see Duval). For the private order itself participation in this dialogue and active encouragement of the enforcement of its results is the best way to guarantee its role as a supplier of rules (see generally Colucci & Geeraert). In contrary, refusal to accommodate certain mechanisms, and mainly these that effectively limit FIFA’s executives’ power (e.g. Ethics Committee), may lead to a forceful, but legitimate, public intervention with possibly tragic consequences for the world of football.

Conclusion: Taking over fallen FIFA

What is so fascinating about FIFA is that it exemplifies how a very small number of enthusiastic people could set a mechanism that is ultimately able to create institutions that aim to regulate behavior of involved actors globally as well as to keep them away from regular courts. FIFA is an example of an order that has created huge economic and social value by being able to overcome many hurdles that prevented countless other member associations from creating their own orders (think of lawyers or investment bankers, for example). The fact that such order locks-in all involved football actors, despite some, such as small teams, benefiting significantly less by their participation than others, suggests that there is a value, despite FIFA’s monopoly power, that alternatives cannot offer. Some of them, such as increased certainty, are in the interests of all involved actors, whereas others, such as commitment to enforce contractual practices or training compensation awards, are more preferred by sophisticated actors (i.e. clubs and prominent footballers) and small clubs, respectively. This, though not allowing to state plainly that the private order is maximizing the welfare of all involved actors, also does not justify arguments for abandoning the current system in favor of state laws. In contrary, failure to accommodate mechanisms that limit the power of inside interest groups might undermine the order by giving incentives to interest groups to advocate public orders’ involvement, thereby putting an end to the monopoly of FIFA’s order, and possibly its destruction.

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Asser International Sports Law Blog

Our International Sports Law Diary
The Asser International Sports Law Centre is part of the T.M.C. Asser Instituut

ASSER Exclusive! Interview with Charles “Chuck” Blazer by Piotr Drabik

Editor’s note: Chuck Blazer declined our official interview request but thanks to some trusted sources (the FIFA indictment and Chuck’s testimony) we have reconstructed his likely answers. This is a fictional interview. Any resemblance with real facts is purely coincidental.



Mr Blazer, thank you for agreeing to this interview, especially considering the circumstances. How are you doing?

I am facing ten charges concerning, among others, conspiracy to corrupt and money laundering. But apart from that, I am doing great (laughs)!

 

It is good to know that you have not lost your spirit. And since you’ve been involved in football, or as you call it soccer, for years could you please first tell us what was your career at FIFA and its affiliates like?

Let me see… Starting from the 1990s I was employed by and associated with FIFA and one of its constituent confederations, namely the Confederation of North, Central American and Caribbean Association Football (CONCACAF). At various times, I also served as a member of several FIFA standing committees, including the marketing and television committee. As CONCACAF’s general secretary, a position I proudly held for 21 years, I was responsible, among many other things, for negotiations concerning media and sponsorship rights. From 1997 to 2013 I also served at FIFA’s executive committee where I participated in the selection process of the host countries for the World Cup tournaments. Those years at the helm of world soccer were truly amazing years of travel and hard work mainly for the good of the beautiful game. I might add that I even managed to document some of my voyages on my blog. I initially called it “Travels with Chuck Blazer” but Vladimir (Putin) convinced me to change the name to “Travels with Chuck Blazer and his Friends”. You should check it out.

 More...



Financial Fair Play: Lessons from the 2014 and 2015 settlement practice of UEFA. By Luis Torres

UEFA announced on 8 May that it had entered into Financial Fair Play settlement agreements with 10 European football clubs. Together with the four other agreements made in February 2015, this brings the total to 14 FFP settlements for 2015 and 23 since UEFA adopted modifications in its Procedural rules and allowed settlements agreements to be made between the Clubs and the Chief Investigator of the UEFA Club Financial Control Body (CFCB).[1] 

In the two years during which UEFA’s FFP regulations have been truly up and running we have witnessed the centrality taken by the settlement procedure in their enforcement. It is extremely rare for a club to be referred to the FFP adjudication chamber. In fact, only the case regarding Dynamo Moscow has been referred to the adjudication chamber. Thus, having a close look at the settlement practice of UEFA is crucial to gaining a good understanding of the functioning of FFP. Hence, this blog offers a detailed analysis of this year’s settlement agreements and compares them with last year’s settlements. More...

Book Review: Reforming FIFA, or Not

Editor’s note: This short book review will be published in a different format in the International Sports Law Journal, due to its timeliness we decided to reproduce it here. 

Reforming FIFA, or Not

 Antoine Duval

Book Review: Mark Pieth (ed.), Reforming FIFA, Dike Verlag, St. Gallen, 2014, 28.00 CHF, p.178

 


This book looks back at the work of the Independence Governance Committee (IGC). This Committee, constituted in 2011, had as primary objective to drive a reform process of FIFA initiated by its President Sepp Blatter. After ordering from the Swiss anti-corruption expert Mark Pieth, a report on the state of FIFA’s governance, FIFA decided to mandate him with the leadership of a consulting body composed of a mix of independent experts and football insiders, which would be accompanying and supervising the internal reform process of FIFA. The IGC was officially dissolved at the end of 2013, after completing its mandate. The book is composed of eight chapters, written by former members of the IGC, including former chairman Mark Pieth. In addition to the chapters, it includes the different reports (available here, here and here) submitted by the IGC to FIFA across the years. In the words of Pieth, this account is “fascinating because it gives a hands-on, realistic perspective of the concrete efforts, the achievements and the remaining challenges in the struggle for the reform of this organization [FIFA], avoiding the usual glorification or vilification.”[1] This review will first summarize the core of the account of the FIFA reform process provided by the book, before critically engaging with the outcome of the process and outlining the deficiencies that culminated on 29 May 2015 with the re-election of Sepp Blatter as FIFA president.More...



The Spanish TV Rights Distribution System after the Royal Decree: An Introduction. By Luis Torres

On the first of May 2015, the Spanish Government finally signed the Royal Decree allowing the joint selling of the media rights of the Spanish top two football leagues. The Minister for Sport stated that the Decree will allow clubs to “pay their debts with the social security and the tax authorities and will enable the Spanish teams to compete with the biggest European Leagues in terms of revenues from the sale of media rights”.[1]Although the signing of the Royal Decree was supposed to close a very long debate and discussion between the relevant stakeholders, its aftermath shows that the Telenovela is not entirely over. 

This blog post will first provide the background story to the selling of media rights in Spain. It will, thereafter, analyse the main points of the Royal Decree and outline how the system will work in practice. Finally, the blog will shortly address the current frictions between the Spanish League (LFP) and the Spanish football federation (RFEF).More...

Sport and EU Competition Law: New developments and unfinished business. By Ben Van Rompuy

Editor's note: Ben Van Rompuy, Head of the ASSER International Sports Law Centre, was recently interviewed by LexisNexis UK for their in-house adviser service. With kind permission from LexisNexis we reproduce the interview on our blog in its entirety. 

How does competition law affect the sports sector?  

The application of EU competition law to the sports sector is a fairly recent and still unfolding development. It was only in the mid-1990s, due to the growing commercialization of professional sport, that there emerged a need to address competition issues in relation to, for instance, ticketing arrangements or the sale of media rights.  More...



Is FIFA fixing the prices of intermediaries? An EU competition law analysis - By Georgi Antonov (ASSER Institute)

Introduction

On 1 April 2015, the new FIFA Regulations on Working with Intermediaries (hereinafter referred as the Regulations) came into force. These Regulations introduced a number of changes as regards the division of competences between FIFA and its members, the national associations. A particularly interesting issue from an EU competition law perspective is the amended Article 7 of the Regulations. Under paragraph 3, which regulates the rules on payments to intermediaries (also previously referred to as ‘agents’), it is recommended that the total amount of remuneration per transaction due to intermediaries either being engaged to act on a player’s or club’s behalf should not exceed 3% of the player’s basic gross income for the entire duration of the relevant employment contract. In the case of transactions due to intermediaries who have been engaged to act on a club’s behalf in order to conclude a transfer agreement, the total amount of remuneration is recommended to not exceed 3% of the eventual transfer fee paid in relation to the relevant transfer of the player.More...

The Impact of the new FIFA Regulations for Intermediaries: A comparative analysis of Brazil, Spain and England. By Luis Torres

INTRODUCTION

Almost a year after their announcement, the new FIFA Regulations on working with Intermediaries (“FIFA Regulations”) came into force on 1 April 2015. Their purpose is to create a more simple and transparent system of regulation of football agents. It should be noted, however, that the new FIFA rules enable every national football association to regulate their own system on players’ intermediaries, provided they respect the compulsory minimum requirements adopted. In an industry that is already cutthroat, it thus remains to be seen whether FIFA’s “deregulation” indeed creates transparency, or whether it is a Pandora’s Box to future regulatory confusion.

This blog post will provide an overview of the new FIFA Regulations on working with intermediaries and especially its minimum requirements. Provided that national associations are encouraged to “draw up regulations that shall incorporate the principles established in these provisions”[1], three different national regulations have been taken as case-studies: the English FA Regulations, the Spanish RFEF Regulations and the Brazilian CBF Regulations. After mapping their main points of convergence and principal differences, the issues that could arise from these regulatory differences shall be analyzed.  More...

Blog Symposium: Why FIFA's TPO ban is justified. By Prof. Dr. Christian Duve

Introduction: FIFA’s TPO ban and its compatibility with EU competition law.
Day 1: FIFA must regulate TPO, not ban it.
Day 2: Third-party entitlement to shares of transfer fees: problems and solutions
Day 3: The Impact of the TPO Ban on South American Football.
Day 4: Third Party Investment from a UK Perspective. 

Editor’s note: Finally, the last blog of our TPO ban Symposium has arrived! Due to unforeseen circumstances, FIFA had to reconsider presenting its own views on the matter. However, FIFA advised us to contact Prof. Dr. Christian Duve to author the eagerly awaited blog on their behalf. Prof. Dr. Christian Duve is a lawyer and partner with Freshfields Bruckhaus Deringer LLP and an honorary professor at the University of Heidelberg. He has been a CAS arbitrator until 2014. Thus, as planned, we will conclude this symposium with a post defending the compatibility of the TPO ban with EU law. Many thanks to Prof. Dr. Duve for having accepted this last-minute challenge! More...






Blog Symposium: Third Party Investment from a UK Perspective. By Daniel Geey

Introduction: FIFA’s TPO ban and its compatibility with EU competition law.
Day 1: FIFA must regulate TPO, not ban it.
Day 2: Third-party entitlement to shares of transfer fees: problems and solutions
Day 3: The Impact of the TPO Ban on South American Football.
Day 5: Why FIFA's TPO ban is justified.

Editor's note: In this fourth part of our blog symposium on FIFA's TPO ban Daniel Geey shares his 'UK perspective' on the ban. The English Premier League being one of the first leagues to have outlawed TPO in 2010, Daniel will outline the regulatory steps taken to do so and critically assess them. Daniel is an associate in Field Fisher Waterhouse LLP's Competition and EU Regulatory Law Group. As well as being a famous 'football law' twitterer, he has also published numerous articles and blogs on the subject.

 

What is Third Party Investment?
In brief Third Party Investment (TPI) in the football industry, is where a football club does not own, or is not entitled to, 100% of the future transfer value of a player that is registered to play for that team. There are numerous models for third party player agreements but the basic premise is that companies, businesses and/or individuals provide football clubs or players with money in return for owning a percentage of a player’s future transfer value. This transfer value is also commonly referred to as a player’s economic rights. There are instances where entities will act as speculators by purchasing a percentage share in a player directly from a club in return for a lump sum that the club can then use as it wishes. More...





Blog Symposium: The Impact of the TPO Ban on South American Football. By Ariel N. Reck

Introduction: FIFA’s TPO ban and its compatibility with EU competition law.
Day 1: FIFA must regulate TPO, not ban it.
Day 2: Third-party entitlement to shares of transfer fees: problems and solutions
Day 4: Third Party Investment from a UK Perspective.
Day 5: Why FIFA's TPO ban is justified.

Editor’s note: Ariel N. Reck is an Argentine lawyer specialized in the football industry. He is a guest professor at ISDE’s Global Executive Master in International Sports Law, at the FIFA CIES Sports law & Management course (Universidad Católica Argentina) and the Universidad Austral Sports Law diploma (Argentina) among other prestigious courses. He is a regular conference speaker and author in the field of sports law.

Being an Argentine lawyer, Ariel will focus on the impact FIFA’s TPO ban will have (and is already having) on South American football.More...