A recent European Court of Justice ruling will force FIFA to rewrite its rules on the transfer of football players between clubs. In particular, it may have to eliminate the Article that makes any football club that hires a player in breach of his or her contract jointly and severally liable for any fines levied on the player by FIFA. This column describes how the ruling could end the practice of football clubs paying transfer fees, spelling the end of football player transfer system as we know it.
A ruling of the European Court of Justice on 4 October 2024 could spell the end of football player transfer system as we know it. In particular, it may end the practice of football clubs paying transfer fees.
The idea that a football club seeking to hire a player must pay a transfer fee to their current club in order to do so has long been a source of puzzlement and often outrage. When Alf Common was transferred from Sunderland to Middlesbrough in 1905 for the record fee of £1,000, one newspaper reported that this was “strongly condemned from many quarters as too much of the white slavery tinge. It is urged that no single player can be worth such as sum”. When in 2017, Paris Saint-Germain paid Barcelona the current world record transfer fee of €222 million to secure the services of Neymar, Eran Yashiv noted on Vox that generally “workers are not bought and sold. The only other prominent case in which prices are known is human slavery” (Yashiv 2017).
The court’s ruling emerged from a case involving Lassana Diarra, a star player for Lokomotiv Moscow back in 2014, who got into a dispute with the Russian club while under contract and quit. He received a job offer from a Belgian club but was unable to take it because of the FIFA transfer regulations. Eleven months after quitting, FIFA decided that Diarra was liable to pay damages of €10.5 million plus interest to Lokomotiv. FIFA might also have penalised him further with a suspension, but decided not to because he had already been unable to work for 11 months.
Diarra countersued, claiming the regulations of FIFA unreasonably restricted his employment rights. The court agreed and affirmed that the FIFA rules breached both Article 48 (freedom of movement) and Article 101 (restraint of trade) of the European Union Treaty. The ruling outlaws a key underpinning of the system, Article 17.2 of the Regulations on the Status and Transfer of Players (RSTP) (FIFA 2024). This rule made any club that hires a player in breach of his or her contract jointly and severally liable for any fines levied on the player by FIFA. Because the rule deters competition to hire players, the court described it as a non-poaching agreement intended to restrain competition.
The court wrote: “[the] restriction thus ensures, in practice, that each club has the certainty or near certainty of retaining its own players until the contract or series of contracts concluded with them has expired or, prior to that expiry, until it decides to part with them in the context of a termination accepted by the player or a negotiated transfer of the player to another club, subject to the payment of a transfer fee to the latter.”
The ruling will require FIFA to rewrite the rules, and likely eliminate Article 17.2 altogether.Once a club is no longer jointly and severally liable for damages when a player under contract decides to breach (i.e. wants to move), then another club can offer him a job without fear of retribution. There is no longer any reason to offer to pay a transfer fee.
Take the example of Harry Kane, the captain of the England men’s national team. In 2021 he declared that he wanted to quit Tottenham, even though he was under contract for a further three years. The dispute with the club rumbled on throughout that summer, but eventually Kane gave up, because no club dared make an offer for fear of the sanctions, and the transfer fee that Tottenham would have demanded would have been Neymaresque. Then in 2023, with one year left, Tottenham traded Kane to Bayern Munich for a reported fee of £100 million. Kane’s salary doubled from around £10 million to £20 million (on a four-year contract).
Had the Diarra ruling applied, Bayern would have been free to offer Kane a new contract once he signalled he wanted to leave and the transfer fee would be moot (Bayern could still be liable for damages if they induced Kane to leave, rather than responding to his declared intent). Given Bayern’s willingness to spend £180 million to acquire Kane, they might reasonably be expected to offer him a salary of £45 million, absent the transfer fee.
The court did accept that Kane could be liable for damages for breach of contract. It demanded that FIFA establish a transparent rule for determining damages, rather than the arbitrary system that currently operates. Establishing a sensible rule presents an interesting challenge for economists. Legal scholars (e.g. Klass 2014) have defined three types of damages:
- Restitution damages require the breaching party (A) to return any benefits provided by the nonbreaching party (B).
- Reliance damages are defined as the compensation required to place B in the same position as if A had not agreed to the contract in first place.
- Expectation damages are defined as the compensation required to put B in the same position as if A had completed the contract.
The court focused on the question of damages payable because the contract is not completed, which likely means a focus on either reliance or expectation damages. To see how damages might be calculated, one must first make some assumption about how player compensation relates to their productivity. Suppose one believed that the player wage was always equal to their marginal revenue product (MRP), as one would expect in a perfectly competitive market.
In the Kane example, this suggests that both the reliance and expectation damages would be zero, since the lost productivity of Kane would be matched by wages no longer paid. In a competitive market, Tottenham would go into the market and pay £10 million for a player of comparable productivity. The fact that Bayern estimates his MRP to be £45 million simply reflects the higher value of his productivity at that club.
However, suppose instead that a player’s MRP varies over the contract, sometimes rising above and sometimes falling below the fixed wage, which is set equal to the expected MRP over the contract lifetime. Furthermore, suppose the wage paid by the new employer is the best estimate of MRP had the player stayed at the old club. If a player with an unexpectedly high MRP wants to leave, the two calculations now differ. The reliance damages are still zero, since the wage and expected MRP were identical when the club signed the contract. But the expectation damages are now £35 million, since the club would have gained value equal to £45 million in MRP less £10 million in wages had Kane completed the contract.
The expectation standard is often said to be efficient, in the sense that breach is only rational if the gain from the new contract exceeds the value associated with fulfilling the old one (e.g. Posner 2014). It may sound reasonable, in that the wage contract might be designed to insure players against variations in MRP. However, the implication is also that the initial contracts are set at competitive levels, so that there is no exploitation. In reality, at the beginning of a player’s career the power asymmetry is likely to be large, so that initial contract wages may well understate MRP. As a result, expectation damages might be unreasonably large, rewarding the club for an unequal bargain. Fudenberg and Rayo (2019) show how apprenticeship contracts, similar to those which apply to young football players, lead to exploitation.
But whatever the standard that is agreed, the era of mega transfer fees should now be over. According to Besson et al. (2024), clubs paid a total of €11 billion in transfer fees in 2024, but this does not mean that wages are likely to rise significantly. Net transfer spending is zero by definition. Moreover, although many fans think that money trickles down from big clubs to small clubs, the reality is that most money circulates among the big clubs and the redistributive effect of transfer fees was negligible (Hoey et al. 2021). The most likely effect is that clubs will now seek to make wages more sensitive to MRP and work on improving job satisfaction, in the same way that most businesses seek to retain high-skilled employees (e.g. Nyberg 2010).
While the requirement to pay damages for breach of contract will still make them an exception among employees in European countries, this judgement substantially increases the freedom of movement of professional footballers. With more than 130,000 professionals worldwide, the greatest benefit will accrue to the majority who are paid modest wages and have hitherto been tied to their club, even when a transfer fee was not at issue. Footballers are finally moving beyond the 1900s.
Source : VOXeu
