In a decision dated October 4, 2024, the Court of Justice of the European Union, the EU’s highest court, ruled that certain FIFA rules requiring compensation to be paid to a player’s former club when the player changes teams are in conflict with EU law. The Court ruled that the rules unreasonably “impede the free movement of professional footballers” and unreasonably restrict cross-border competition. U.S. courts reached the same conclusion regarding similar restrictions imposed by sports leagues decades ago.

The Lassana Diarra case

The underlying case concerns Lassana Diarra, a now retired French player. Diarra played for Russian club Lokomotiv Moscow in 2013-2014. After a dispute with Lokomotiv, Diarra’s contract was terminated. He was then reportedly in negotiations to play for Belgian club Charleroi. However, Diarra claims the negotiations were unsuccessful because Charleroi believed it would have to pay compensation to Lokomotiv under FIFA rules on the status and transfer of players. These regulations require clubs that sign or acquire players to pay compensation to the players’ previous teams, depending on various factors, such as the costs involved in training the player and the players’ age and contract status. These payments, also called training or solidarity compensation payments, are intended to compensate teams for the costs associated with developing players and can run into the millions of dollars.

Diarra sat out the 2014–15 season and eventually initiated the lawsuit that has now successfully challenged FIFA rules.

The NFL’s Rozelle Rule

The FIFA rules are not new in design. In 1963, the NFL implemented the Rozelle Rule. The rule, named after then-NFL commissioner Pete Rozelle, was a unilaterally imposed rule that allowed players to sign with other teams upon contract expiration, but the commissioner could award players to the club the player left. The Rule had a chilling effect on player movement, as only four players changed clubs between 1963 and 1973.

In 1972, Baltimore Colts tight end and future Hall of Famer John Mackey filed a lawsuit claiming that the Rozelle Rule was a violation of antitrust law. In particular, Section 1 of the Sherman Act prohibits two or more parties from conspiring to unreasonably restrain trade in a market. Mackey alleged that by collectively agreeing to and implementing the Rozelle Rule, NFL clubs failed to compete in a free and open market for player services as required by antitrust law.

The District Court of Minnesota and the Eighth Circuit Court of Appeals agreed with Mackey. Of particular relevance to the immediate decision on FIFA rules, the Eighth Circuit held that “the purported need to recoup player development costs cannot justify the restrictions of the Rozelle Rule. These costs are normal costs of doing business and are not specific to professional football.”

The Mackey The case was one of several between the 1970s and 1990s in which players successfully challenged labor market restrictions in the NFL, NBA and NHL (MLB’s challenges to restrictions were complicated by the antitrust exemption, which now stands for relevant part has been withdrawn). The leagues had unilaterally banned or restricted free agency for decades, reducing competition between clubs and player salaries and choices at the same time.

The non-statutory employment exemption

As a result of the players’ legal victories, the leagues began negotiating with their players to have such restrictions protected by the non-statutory employment exemption, perhaps the most important concept in sports and the law. The nonstatutory labor exemption is a Supreme Court policy that grants antitrust immunity to employers who agree to rules that restrict the labor market, as long as those rules are negotiated with the employee’s union.

For decades, the non-statutory labor exemption has supported labor relations in American sports. In exchange for salary caps, player changes and restrictions on free agency, the players receive a guaranteed share of league revenues (which largely come from television broadcast rights). After years of litigation over the limits of the exemption in the 1980s and 1990s, labor relations in American sports have been fairly peaceful in recent years.

The EU’s own goal

For whatever reason, it doesn’t appear that the European sports industry – or the courts – has learned from the decades of lawsuits in American sports. FIFA’s rules are problematic because they have not been negotiated with the players. Article 101 of the Treaty on the Functioning of Europe (TFEU) is functionally the same as Article 1 of the Sherman Act in prohibiting unreasonable restrictions on trade between two or more parties.

However, the EU also recognizes a non-statutory labor exemption, which allows certain restrictions on the labor market if negotiated with the union. As a result, FIFA – and its affiliated national leagues – could likely lawfully impose their transfer restrictions if the players consent, just as American sports leagues have done for nearly fifty years.