Financial Fair Play & UEFA’s Latest Dance of Ignominy Before the Court of Arbitration for Sport

The CAS decision in outline

On 13 July 2020, the Court of Arbitration for Sport (CAS) in Lausanne, Switzerland issued its decision in the arbitration procedure between Manchester City Football Club and the Union of European Football Associations (UEFA). The case concerns an appeal filed by Manchester City FC (MCFC) against the decision of the Adjudicatory Chamber of the UEFA Club Financial Control Body (CFCB) dated 14 February 2020, deeming MCFC to have contravened UEFA’s Club Licensing and Financial Fair Play Regulations, and sanctioning MCFC with exclusion from participating in UEFA club competitions in the next two seasons, plus a fine of EUR 30 million.

The decision marked a watershed in football jurisprudence as far as the Financial Fair Play Regulations of the continental football body are concerned, and indeed raises genuine concerns about the efficacy of the Regulations. The Panel of arbitrators in charge of the matter, composed of Mr Rui Botica Santos (Portugal), President, Prof. Ulrich Haas (Germany) and Mr Andrew McDougall QC (France), conducted a hearing with the parties, their legal representatives, witnesses and experts on 8, 9 and 10 June 2020.

Following the hearing, the CAS Panel deliberated and concluded that the decision issued on 14 February 2020 by the Adjudicatory Chamber of the CFCB should be set aside and replaced by the following: MCFC has contravened Article 56 of the Club Licensing and Financial Fair Play Regulations; and MCFC shall pay a fine of EUR 10 million to UEFA, within 30 days from the date of issuance of the arbitral award. The CAS award emphasised that most of the alleged breaches reported by the Adjudicatory Chamber of the CFCB were either not established or time-barred. As the charges with respect to any dishonest concealment of equity funding were clearly more significant violations than obstructing the CFCB’s investigations, it was not appropriate to impose a ban on participating in UEFA’s club competitions for MCFC’s failure to cooperate with the CFCB’s investigations alone.

However, considering (i) the financial resources of MCFC; (ii) the importance of the cooperation of clubs in investigations conducted by the CFCB, because of its limited investigative means; and (iii) MCFC’s disregard of such principle and its obstruction of the investigations, the CAS Panel found that a significant fine should be imposed on MCFC, and considered it appropriate to reduce UEFA’s initial fine by two-thirds, i.e. to the amount of EUR 10 million.

Synopsis of the FFP framework

UEFA had, in times past, adopted various financial regulatory criteria into its existing club licensing framework. Notably, in 2010 UEFA created the unitary UEFA Club Licensing and Financial Fair Play Regulations (FFP Regulations). Since 2010, the continental football governing body has been updating the FFP Regulations, with updates made in 2012, 2015 and 2018. The body tasked with enforcing the FFP Regulations is the CFCB, which is divided into two tiers: an Adjudicatory Chamber and an Investigatory Chamber. Beyond the FFP Regulations itself, UEFA has generated a body of rules (the Procedural Rules) to guide the regulatory functions of the CFCB; these have likewise been updated thrice, in 2014, 2015 and 2019.

Article 2(2) of the Regulations is instructive as it underlines the guiding principle of the FFP Regulations, which in a nutshell seeks to: improve the economic and financial capability of clubs; increase transparency and accountability; protect clubs’ creditors and ensure settlement of liabilities to employees; introduce discipline and rationality in club football finances; and encourage responsible spending.

Break-even requirements

It is pertinent at this juncture to mention UEFA’s break-even requirements. These aim to ensure clubs live within their footballing means: in practical terms, football expenditure must be taken out of football income over a three-year rolling period, with an allowable deviation of €5 million. These requirements take cognisance of certain factors, not least the fact that some clubs may have surpluses in some years and deficits in others, hence the three-year rolling period. Clubs are always afforded the opportunity to regularise their records in order not to breach the FFP Regulations. In addition, concessions are granted to some privately owned clubs with aggregate losses of up to €30 million, by permitting equity contributions (not loans) from owners to keep them going — initially, owners could put in as much as €45 million. In respect of force majeure, there were indications the applicability of the Regulations would be suspended for some time due to the Covid-19 pandemic.

Manchester City’s earlier legal spat with UEFA before CAS

Sequel to the latest decision of the CAS in this reference, MCFC had upstaged UEFA in an earlier proceeding before the CAS in 2019, technically known as the “Referral Decision and Leaks Decision” of the Investigatory Chamber. It is pertinent to note that appeals only lie to CAS if the decision of the Investigatory Chamber is a final decision. Having taken the position that this was the case, MCFC submitted a Statement of Appeal which can be summarised as follows: the Referral Decision and Leaks Decision are both final decisions of the Investigatory Chamber and therefore within the scope of CAS’s jurisdiction; the Investigatory Chamber exceeded its jurisdiction in making the Referral Decision; UEFA has systematically breached, and continues to breach, its duty of confidence; the Referral Decision was made improperly and prematurely, while the investigation was still ongoing, despite the fact that the Investigatory Chamber is only empowered to make a decision to refer a case at the end of an investigation; the investigation and the decision lacked procedural fairness and due process; and the decision and the leaks have caused, and continue to cause, MCFC serious harm and loss.

MCFC further argued that breaches alleged against it before the 2016–17 reporting period are covered by the Settlement Agreement, and that the Investigatory Chamber lacks jurisdiction in respect of the subject matter of the 2014 Settlement Agreement because the Settlement Agreement created a bespoke “Settlement Regime” covering the entirety of the periods referred to in the Referral Decision; in any event, the Investigatory Chamber has issued a decision through which MCFC has been formally released from the Settlement Agreement and the Settlement Regime; the Investigatory Chamber, and by extension UEFA, is time-barred from reopening proceedings concluded by the Settlement Agreement and letter of release; all breaches alleged against MCFC more than five years prior to the communication of the Referral Decision to the Adjudicatory Chamber are time-barred by virtue of Article 37 of the Procedural Rules; and, in any event, the temporal jurisdiction of the Investigatory Chamber is limited to the current “monitoring period.”

On its part, UEFA submitted that MCFC’s appeal was still pending before the Adjudicatory Chamber, making any appeal on the merits premature and inadmissible; that the Chief Investigator’s communication of 20 May 2019 constituted no appealable decision; and that the requirements of Article R47 of the CAS Code had not been complied with, in particular that MCFC had failed to exhaust the internal legal remedies available to it prior to the appeal.

In delivering its decision, the CAS noted that Article 34 of the CFCB Procedural Rules refers to the CFCB and not specifically to the Adjudicatory Chamber, suggesting the Investigatory Chamber can hypothetically render final decisions that may be appealed to CAS directly. On the narrow issue of whether the Referral Decision and Leaks Decision constitute final, directly appealable decisions, the Panel found that the types of decisions listed in Article 27 of the CFCB Procedural Rules are “final decisions” that can be appealed to CAS. As a corollary, a decision by the Investigatory Chamber to refer a case to the Adjudicatory Chamber is not final and cannot in principle be appealed to CAS directly, because it is the Adjudicatory Chamber that is competent to take any of the decisions listed in Article 27 as being final. Ultimately, the Panel held that the appeal was premature and inadmissible.

Historical challenges to the FFP Regulations

The UEFA FFP has been the subject of dispute between a number of European clubs and UEFA. Several clubs have challenged the methodology of the FFP Regulations and, ultimately, their implementation by the CFCB. While some clubs have entered into settlement agreements to meet the break-even requirements, others have adopted a more confrontational posture.

The first case to come to CAS was Galatasaray v UEFA. Galatasaray had entered into a settlement agreement with the CFCB in 2014 under which it needed to be break-even compliant; by the 2015/16 season its employee expenses could be no more than €90 million. In October 2015, the club was found to have exceeded the break-even deficit by €134.2 million, with employee expenses of €95.5 million. The Adjudicatory Chamber, in March 2016, sanctioned the club with exclusion from the next competition it would qualify for in the next two seasons and set a limit on its employee expenses of €65 million. Galatasaray appealed to CAS, claiming the FFP Rules were illegal and the sanctions grossly disproportionate. Although CAS found the UEFA FFP constituted a “decision by an association of undertakings” that “may affect trade between member states,” it found no breach of competition law, holding in part that the club had not adduced evidence to show the Regulations constituted a restriction “by effect.”

Soon after Galatasaray came Kardemir Karabükspor v UEFA. Here again there was a settlement agreement with the CFCB, under which the club needed to be within the €5 million allowable deficit by March 2016. At the next monitoring date, the club was found to have breached the break-even indicator, in deficit to the tune of €24 million, with no equity injection to cover the sum. In June 2016 the Adjudicatory Chamber sanctioned the club with exclusion from the next competition it would qualify for in the next two seasons. The club was ultimately relegated and appealed to CAS. The Panel felt the club could have altered its structure sooner and therefore bore the consequences of non-compliance with the settlement agreement. CAS dismissed the appeal, noting the settlement agreement was already a second chance, and that relegation of itself was not an event of force majeure.

In Metallurg v UEFA, the dispute concerned the CFCB’s allegation that Metallurg had breached Articles 65(1) and 65(8) of the FFP Regulations by having overdue payables towards other football clubs. As a result, the CFCB excluded Metallurg from the next UEFA club competition for the next three seasons, unless it could prove it had settled the overdue payables by 31 January 2014. The single issue for determination was whether Metallurg complied with the condition imposed by the CFCB; having determined it had not, the Sole Arbitrator held the issue of disproportionality of the competition ban was moot.

AC Milan v UEFA (CAS 2018/A/5808) was the first decision of the Adjudicatory Chamber of the UEFA CFCB, which initially determined AC Milan had failed to fulfil the break-even requirement and imposed a ban entailing non-participation in the next UEFA club competition for two years. On appeal, the Panel partially upheld AC Milan’s appeal and remitted the case back to the Adjudicatory Chamber for a “proportionate disciplinary measure,” holding that certain important elements had not been properly assessed by UEFA’s Adjudicatory Chamber.

Conclusion

As demonstrated in the foregoing, European clubs are taking advantage of the lapses in the Procedural Rules of the CFCB. Most of the cases that failed at CAS were frontal challenges to the FFP Regulations themselves; the latter cases alleging procedural unfairness were set aside, in full or in part, to underscore the gaps in the procedure. Even though the doctrine of stare decisis does not apply to CAS decisions, the trend has shown that subsequent cases before CAS on similar principles take judicial notice of earlier decisions, as we have seen in Amos Adamu v FIFA.

With its public display of disapproval of PSG’s financial dealings in time past, it would be interesting to see how UEFA approaches its investigations of rich clubs in the coming months. The clubs would certainly be brimming with confidence with the latest development, unless UEFA overhauls its investigatory and adjudicatory processes and addresses the procedural lapses in its recent proceedings.