“FIFA cannot sit by and see greed rule the football world. Nor shall we.” – Sepp Blatter

Nearly one year after its publication, the FFAR still remains a hot potato, which has been considered in various ongoing and already concluded court proceedings. While FIFA claims the new regulation is necessary to fight a highly speculative market with allegedly misaligned incentives, player agents and their associations fight the FFAR, regarding it as a strong interference in their economic freedom. In the end, the different cases revolve around the question of whether the rules constitute a violation of antitrust law or whether they can be justified on efficiency grounds.

However, in past months, contradictory court decisions have significantly increased the confusion among player agents and clubs. In this blog post, our sports economics experts shed light on the new regulation and evaluate potential outcomes of the FFAR on the market conditions.

“Why couldn’t you beat a richer club? I’ve never seen a bag of money score a goal.” – Johan Cruyff

The amount of money involved in football player transfers has increased rapidly in the past few years. As a result of this trend, 2023 will be the first year in the history of football in which transfer fees will break the €10 billion mark, more than doubling compared to ten years ago (Poli et al., 2023). In the wake of this development, a debate has erupted over who is responsible.

FIFA quickly identified the player agents as the culprits. In January 2023, roughly three weeks after the controversial World Cup in Qatar, FIFA announced its new set of rules, which were to come into force on the first of October of the same year. Within this regulation, especially Article 15 sparked controversy, introducing a “Service Fee Cap” for player agents. This rule caps the service fee for football agents to 3% of the player’s annual remuneration.[1] The same cap applies if the agent represents the acquiring club. An agent can also represent the player and the acquiring club simultaneously, resulting in the sum of both individual representation caps. If representing the releasing club, an agent can obtain up to 10% of the transfer compensation. However, in this case, no double representation is allowed. Since player agents see their economic potential strongly restricted, the FFAR depicts a far-reaching restriction of national and EU competition law.

Before we analyze this trade from an economic point of view, we need to briefly summarize the market for football player agents in an economic framework. First, player agents used to represent the clubs, not the players, and mainly worked in the area of scouting players potentially to be enlisted by that club. However, with most professional clubs building their in-house scouting department, agents needed to find a new role in the industry. Eventually, they settled on a new set of customers that suffered inherently from low bargaining power and incomplete information in the transfer market: the players (Semens and Pendlebury, 2023). The reasons for the player’s need for a representative in the negotiation of a potential transfer are manifold. The most prominent economic example is information asymmetry. The player’s knowledge of the transfer market itself is somewhat limited (Bull and Faure, 2022), and this is especially true when considering international trades. Player agents resolve that asymmetry between a player and a club (while also creating some information asymmetry between the player and the agent). This economic rationale found its way into the courtyards that are engaged in the new regulation. However, some interpretations proved rather odd.

“To win you have to score one more goal than your opponent.” – Johan Cruyff

The first court to take action was the Landsgericht Mainz, asking the European Court of Justice (ECJ) to issue a preliminary ruling regarding the FFAR and its compatibility with EU law. This case is still pending. The first court to reach a decision was the Landsgericht Dortmund. They prohibited the implementation of the new regulation (at least until the ECJ’s decision) and imposed a fine on FIFA and its national representative. Their main argument was that the FFAR violates § 33 Sec. 1 of the German Competition Act in combination with Art. 101 in the Treaty on the Functioning of the European Union (TFEU). This means that the court suspected a restriction on trade between EU members and further it concluded that competition within Germany is at risk as the FFAR goes beyond a simple framework for sports. It can therefore not be excluded from competition law, Art. 101(3) TFEU applies. This rejects the so-called Meca-Medina test. The Meca-Medina test applies when a competition-related question is of a sports-related nature rather than an economic one. If it applies, behaviour restricting competition is allowed and justified specifically in sports-related questions (e.g., doping, where the Meca-Medina test has its roots). As negative effects do not outweigh positive effects, inapplicability according to Art. 101(3) TFEU is not given either. More European courts followed. In early November, the Spanish Commercial Court No. 3 ordered FIFA and its national representative to refrain from incorporating the controversial Article 15. Later that month, an English tribunal came to the same conclusion, ruling the FFAR incompatible with British competition law.

A different conclusion has been reached by the Court of Arbitration for Sport (CAS), where the Professional Football Agents Associations (ProFAA) sued the FFAR. The lawsuit has been completely dismissed. ProFAA claimed that FIFA has a dominant position in the market according to Art. 4(2) in the Swiss Cartel Act (CartA)and that its new regulation is an unlawful practice according to Art.7 CartA. However, the CAS did not detect any violation, arguing that Art. 7 CartA aligns closely with Art.102 TFEU, which ProFAA failed to prove was violated. The same arguments were delivered for compliance with French and Italian law.

Currently, while more and more national courts rule the FFAR incompatible with competition law, everybody is waiting for the ECJ’s verdict, which will point the way forward and strongly affect the world of football. However, the diverging verdicts raise several questions, especially: Are there actual market failures that would justify such a strong regulation of the players’ agents? If yes, is the FFAR a justified, efficiency-raising regulation to address such market failures within the transfer market or does the FFAR simply restrict competition in favour of the clubs?

“If you eat caviar every day it is difficult to return to sausages.” – Arsene Wenger

As argued, the player agent reduces information asymmetries between players and clubs, while at the same time creating information asymmetries between themselves and players. If then the player’s agent is not capable of delivering the services needed by the player, there is a risk of market failure since players cannot negotiate an efficient contract. Additionally, even if capable, the agent might not behave in the player’s interest (Bull and Faure, 2022). This might happen when he maximizes his own short-term fees by agreeing with a specific club as opposed to the player's long-term career income, which might have been maximized through another agreement. However, this opportunistic behaviour is not addressed by the FFAR. Moreover, the FFAR could theoretically increase the risk of such hazardous behaviour. As the service fee cap is asymmetric between agents representing players or the purchasing club, agents will be incentivized to be on the selling (club) side of transfers, rather than on the player’s side.

FIFA argues that another justification  for the FFAR is the increase in spending on international transfer compensations. Looking at existing data on transfers 10 years ago, within the Top-Five leagues, 10% of the trades already represented 50% of transfer spending (KEA, 2013). With top transfers showing increasing sums in the past few years, the share of these 10% likely increased. Hence, at least part of the problem is easily detected. This includes lower-ranked leagues and clubs that do not have the means to spend an excessive amount on expensive transfers, which are rightly criticized by FIFA. With all clubs being affected, it is likely that financially stronger clubs consolidate their market power, and with player agents being incentivized to represent clubs rather than (small) players, the player’s bargaining power shrinks further. The reason why FIFA does not directly target the clubs responsible for the excessive transfer fees remains unclear.

FIFA itself explicitly highlights three potential market failures: the Hidden Information Problem, the Gatekeeper Problem, and the Hold-Up Problem. However, the Hidden Information Problem should not apply in this case, as players, while not having sufficient knowledge of the transfer market, can easily gather information about agents through, e.g., their portfolio or past transactions (trades). Agents even help to reduce the Hidden Information Problem between players and clubs. However, if the agents are facing a 2% to 4% drop in the service fee just above the USD 200,000 threshold, they are incentivized to negotiate their players’ remuneration down just below that threshold. The Gatekeeper Problem, if it is even applicable to the transfer market as a whole, gets shifted to another Gatekeeper: FIFA itself with its licensing policy in the player agent’s market. The Hold-Up Problem should not apply in the first place, as contracts between agents and their players can include conditions over the whole period of the respective contract. Moreover, how this theory of harm comes to be still remains to be explained by FIFA. Thus the regulation does not increase efficiency in the player market. At the same time, it strongly affects competition amongst player agents.

The regulation needs to address the potential problem at hand, not hinder competition where it used to thrive. Since any organized sports league violates some aspects of competition law, certain concessions are usually made in order to hinder a complete monopolization. These concessions are usually related to markets going beyond the sports framework itself (e.g., TV rights). If one argues that football agent services fall into the same category, as the Landsgericht Dortmund does, concessions should be expected from FIFA. However, with the FFAR, the contrary can be observed, as FIFA strengthens its position in the market for player agents, further advancing monopolization. This poses a clear interference in economic freedom that is not backed up by an increase in efficiency.

“FIFA stands for discipline, respect, fair play, not just on the field of play, but in our society as well.” – Sepp Blatter

While there are some economically valid arguments that the player agents market should be regulated, the new regulation by FIFA seems more like a strengthening of its own position rather than solving supposed information asymmetries between players and their agents. The FFAR regulates a whole market, while it does not try to investigate which part of the market is truly responsible for the excessively high player transfer fees. The suspense remains though, with the world of football eagerly awaiting the ECJ’s decision, which is not to be expected before the start of the next year. It is to be hoped that the ECJ considers the economic rationale and weighs in if a reasoning through efficiency is truly given, whilst handling the case FIFA vs. player agents. However, until then, and with some exceptions, the FFAR applies.

[1] If the player’s annual remuneration lies below USD 200’000, the Service Cap is set at 5%.

References:

• Bull, W., & Faure, M. (2022). Agents in the sporting field: a law and economics perspective. The International Sports Law Journal, 1-16.

• FIFA (2022). Football Agent Regulations.

• KEA & CDES. (2013). The economic and legal aspects of transfers of players.

• Pendlebury, A., & Semens, A. (2013). Sport agents and Intermediaries. In The Business of Sport Management. Pearson Education Ltd.

• Poli, R., Ravenel L. & Besson, R. (2023). Demo-economic analysis of player transfers (2014-2023). CIES Football Observatory Monthly Report n°87. Available at: https://football-observatory.com/MonthlyReport87

Haben Sie Feedback oder Fragen? Bitte wenden Sie sich direkt per Mail an die Autorin oder liken/kommentieren/sharen Sie auf LinkedIn.