Landmark Court Ruling Against FIFA Will Change Soccer Business Models

Soccer player transfer fees have reached record levels in recent years, but following an EU court ruling this month, some are suggesting the transfer market could be dead.

The European Court of Justice ruled on Friday in favor of former French international Lassana Diarra, who was arguing FIFA’s rules prevented him from joining Belgian club Charleroi after his contract with Russian side Lokomotiv Moscow was terminated in 2014.

Diarra’s move to Charleroi collapsed as FIFA wouldn’t issue the player with an international transfer permit until compensation was paid to Lokomotiv and because FIFA rules could have potentially held Charleroi liable for compensation to Diarra’s former club for the termination of his contract “without just cause.”

The ruling means FIFA would be unable to use its transfer permit system to prevent players who breach their contract from playing for a different team.

The court said that while some restrictions on player movement are needed, those particular FIFA rules go “beyond what is necessary.”

FIFA says the ruling means it just has to rewrite two paragraphs of its rules and that it “does not change the core principles of the transfer system at all.” But FIFPRO, the soccer players’ union, said the ruling goes much further and will “change the landscape of professional football.”

Soccer’s transfer market relies on FIFA restrictions and punishments to prevent players not being easily able to break their contract and change clubs. Why spend millions of dollars signing a new player if they can break their contract and join a new club whenever they want?

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With FIFA’s ability to punish clubs and players for breaching or terminating contracts diminished by this ruling. The transfer fee that clubs will be able to demand for a player on a long contract could fall, as those players and their agents will have more power to force a move.

It is not clear how much player-power will increase, but even this uncertainty will have dramatic consequences for soccer clubs.

Chelsea, Manchester United and Manchester City, for example, have all spent more than a billion dollars each to assemble their squads. If players could freely rip up their contracts, all that spending would become worthless.

While the top teams earn huge revenues from sponsorship, TV deals, and commercial deals, further down the pecking order, player trading is the main way clubs can make a profit.

Burnley under Vincent Kompany, for example, aimed to develop a particular style of play that increased its player values so they could be sold for a profit. They aimed to keep salaries low and buy players with potential to be better in the future. These profits from player sales keep many clubs afloat. Between 2015 and 2024, clubs in England’s second tier Championship have brought in a net gain of $1.65 billion from transfers according to research group CIES Football Observatory. For clubs in Portugal’s Primeira Liga, the net gain is $2.57 billion, while the Netherlands’ Eredivisie brought in $1.64 billion.

The short-term effect of this ruling is that there is increased uncertainty over player values, so clubs may be more unwilling to spend as much on young players with high potential as there is more risk that they won’t get as much profit from selling these players in the future.

As valuable players under contract are assets, this decrease in the value of some clubs’ assets could have other financial implications. Any club relying on player sales to keep it solvent could even potentially be in danger.

For FIFA, the priority now must be rewriting the two rules directly affected by the court judgement to provide clubs with some level of certainty. This may mean involving FIFPRO in the process to prevent future legal disputes.

In the wider picture, FIFPRO could push further, demanding more player power and making it far easier for players to break contracts.

FIFPRO would be wise not to kill the goose that lays the golden egg though.

Soccer players get paid so well because of a transfer system that makes them valuable assets. Chelsea, for example have given several players extremely long contracts to protect their value. Should Nicolas Jackson, for example, suddenly become terrible at soccer, Chelsea would still be liable to pay him until the 2030s. The likes of Jack Rodwell at Sunderland or Harry Arter at Nottingham Forest show the dangers of offering players long contracts on high wages, but if players can freely move clubs, then clubs won’t get any upside that comes with these risks.

And if players can more easily break their contracts, there is less incentive for clubs to develop young players. Why sign a 21-year-old who still needs experience to reach his potential when you could instead sign a 27-year-old at the peak of their career?

FIFPRO’s need to consider such factors suggests the ruling might not have as far-reaching consequences as some have predicted, but the overall weakening of the transfer system will put some clubs’ financial models at risk. Boardrooms across soccer will likely be having urgent talks over the implications on their business of this EU court ruling.