The training allowance and the free movement of workers (EU Sports Law)
Training allowances have come under pressure under EU law over the past two decades. In particular, the rules regarding the four freedoms that constitute the European internal market have had an influence on the European sports world, and on football in particular. Because the majority of professional footballers are affiliated with a club through an employment contract, players and clubs have repeatedly relied on the free movement of workers to dispute training compensation owed.
Since the Walrave case of 1974, the Court of Justice has accepted that sport falls under Community law (now EU law) insofar as it constitutes an economic activity. A professional footballer who is employed as an employee does indeed carry out an economic activity, resulting in the application of EU law.
The primary source for the free movement of workers is Article 45 of the Treaty on the Functioning of the European Union (hereinafter TFEU). To fall within the scope of Article 45 TFEU, three conditions must be met. It must concern an employee (1) who is a national of an EU Member State (2) and there must be a cross-border element (3).
The concept of employee was defined by the Court of Justice as “a person who performs certain services for and under the authority of another person for compensation”. The judge will decide on a case by case basis in concrete terms judge, but a professional footballer who trains every day, is under the direction and supervision of his club and is paid for this, will probably qualify as an employee within the meaning of Article 45 TFEU.
According to Article 45 TFEU, any obstacle to free movement or discrimination between workers of Member States on the basis of nationality is prohibited. However, barriers can be justified on the basis of the so-called rule of reason, developed by the Court of Justice in the Cassis de Dijon judgment. A restrictive measure which pursues a legitimate aim compatible with the Treaty and which is both appropriate and necessary to achieve that aim may be justified.
A training allowance payable as a result of an international transfer constitutes a restriction on the freedom of movement of a footballer as an employee. The acquiring club must pay the training fee, which complicates the footballer’s ability to play in another Member State.
The Bosman case
The first time that the compatibility of a training allowance with the free movement of workers was discussed was in the Bosman judgment. Jean-Marc Bosman was a Belgian footballer who was transferred on loan from RC Liège to Dunkirk. Because RC Liège did not have confidence in Dunkirk’s financial capacity to pay the requested transfer fee, it asked the KBVB not to send the transfer certificate to the French Football Association (FFF). Bosman was also suspended, meaning he could not play for the first team of RC Liège for the rest of the season.
Bosman then went to court and the case eventually came before the Court of Justice. One of the justifications put forward by sporting bodies was that the transfer system should remain in place to encourage clubs to invest in youth training. Without training compensation, the incentive for clubs to train young players would disappear.
The Court of Justice recognizes that training young players is a legitimate aim. Also, the prospect of receiving training compensation can in principle encourage clubs to look for new talent and train young players. However, because only a small number of the players trained will become professional footballers and a sporting career is difficult to predict, there is too great a degree of uncertainty and chance characterizing training compensation. Due to its uncertain nature, a football club cannot rely on generating income from player training. A training allowance is also linked to the market value of a player instead of to the actual training costs spent by a club. In those circumstances, the prospect of compensation cannot be a decisive incentive to train players, the Court said.
The Bernard case
15 years after the Bosman judgment, the Court of Justice had to rule again on training allowances, this time in the Bernard case. It concerned a French player who signed a promise contract with Olympique Lyonnais. As a result, he was obliged to accept any contract proposal made to him by Olympique Lyonnais after the expiry of the term of this contract. This was arranged in a charter signed by the French Football Federation, the players’ union and the football club league. However, Bernard wanted to play for Newcastle United. Olympique Lyonnais then went to the labor court with a demand for an annual salary as compensation for breach of contract. Bernard argued both on appeal and in Cassation that this compensation is in fact a hidden training compensation. The case was referred to the Court of Justice.
In this judgment the Court deviates somewhat from its findings in the Bosman judgment. Because only a portion of trained players eventually become professional footballers and because the costs of training young players are only partially offset by the profits that can be made from these players during the training period, the return on training investments made by clubs is characterized by chance. In those circumstances, i.e. in the state of uncertainty in which a training club finds itself, a club would be discouraged from investing in youth training if it did not receive training compensation when a player signs a contract with another club after training. Such a scheme can therefore in principle be justified by the legitimate aim of encouraging the training of young players. However, the arrangement that the Court is confronted with in the Bernard case is neither appropriate nor proportionate. The training compensation is calculated on the basis of the damage suffered by Olympique Lyonnais, without any link with the actual training costs.
The Court thus twice attaches different consequences to the uncertain nature of the training allowance. In the Bosman judgment, it was of the opinion that a training allowance in its current form is not a suitable means, given its uncertain nature. In the Bernard case, on the other hand, the Court stated that the uncertainty associated with a training allowance is a reason to maintain the allowance. After all, clubs are confronted with uncertainty, which would only increase if training compensation were banned.
The Wilhelmshaven case
A final benchmark in the series of disputes regarding training compensation concerns the Wilhelmshaven case. It was the first time that the training allowance system, as explained in part 1 of this series, was tested by a judge for its compliance with the free movement of workers.
It was about an Argentinian-Italian footballer, Sergio Sagarzazu, who spent his training years at Atlético Excursionistas and Atlético River Plate. In 2007 he was loaned to SV Wilhelmshaven, where he signed his first professional contract. Excursionistas claimed to be entitled to a training allowance of 60,000 euros. River Plate claimed compensation of 100,000 euros. SV Wilhelmshaven considered these amounts to be disproportionate and challenged them with FIFA DRC, the CAS and the ordinary court. Ultimately the case came before the Oberlandesgericht Bremen.
The Oberlandesgericht states that a form of training compensation can be justified in the case where a player enters into a first professional contract with a club other than the training club after completing his training. De bestaande vormen van opleidingsvergoedingen werden echter niet beschouwd als een geschikt middel.
On the one hand, training compensation is characterized by uncertainty and chance. The professional career of a youth player cannot be estimated and only a limited number of youth players will sign a professional contract. On the other hand, the current form of training reimbursements is not based on the actual training costs incurred by a club. After all, the FIFA regulations are based on the costs saved by the recruiting club instead of the costs incurred by the training club. In addition, FIFA does not take into account the actual training costs, but the economic value of a player. After all, the categories of training compensation are valued per continent, based on the economic value of the umbrella football association of a continent. In addition, clubs are classified per category based on the national league and class in which they play and therefore not according to their training efforts.
The Wilhelmshaven judgment is the final chapter in the discussion about training compensation for the time being. In part four of this series, criteria are distilled from the above case law that a system of training allowances must meet in order to pass the rule-of-reason test. Attention will also be paid to alternative systems that are suggested in case law and doctrine.
Previous parts: Part 1 – Part 2
Next part : Part 4: critical analysis of the current system