The CAS Pro/REL Case: The Panel’s Reasoning

Last month, the Court of Arbitration for Sport rejected Miami FC and Kingston Stockade’s claim against FIFA, the US Soccer Federation and Major League Soccer for violation of FIFA Article 9, which requires promotion based “principally” on sporting merit. The decision was meaty — both in the amount of information and the potential consequences. So I will be analyzing it in multiple articles. This one will explain the CAS Panel’s reasoning. Subsequent posts will explain the decision’s practical impact, address some of the concepts underlying the decision and critique the Panel’s reasoning.

Standard of Review

The Panel’s standard of review was deferential to FIFA. Soccer’s governing body is a private association, organized under Swiss law. And according to the Swiss law of associations, such groups enjoy autonomy to enforce their own rules. In particular, this means their interpretation of their own statutes is assumed to be competent and entitled to deference.

Though wide, the deference is not absolute. In effect, the Panel ruled the claimants could overcome FIFA’s deference by showing its interpretation of Article 9 was unreasonable or exceeded its authority. This was a demanding goal that was always going to be difficult to reach.

Interpretive Approach

The Panel interpreted Article 9 though a staggered process. They began with the rule’s text, which would control unless the Panel found objective reasons to believe it did not reflect Article 9’s “core meaning” or was “not entirely clear.” If either were the case, the Panel would turn to outside sources to discern the rule’s meaning.

Text is not definitive

In short, the Panel held that, by itself, Article 9’s text did not establish the rule’s meaning. Primarily, this conclusion stemmed not from the language FIFA chose to include, but rather, the language it chose to omit. As written, Article 9 demands that the right to participate in a country’s domestic championship “shall be based principally on sporting merit.” The Panel did not necessarily find these words unclear. They found them unclear when balanced against issues the statute chose not to address — namely, language requiring countries without pro/rel to adopt it. As the Panel observed, for these “closed system” countries, a mandate to open would have required dramatic change. So reason would dictate that, if FIFA wanted to force a worldwide conversion to pro/rel, it would have made that clear in Article 9’s text.

This last part is crucial, as laws never address every possible issue. But if the issue is one FIFA would have had to confront, or likely would have confronted, it becomes more plausible to argue the statute is unclear. In this case, the Panel believed FIFA would have had to address the massive implications of forcing pro/rel on unwilling countries. Because Article 9 was silent on this point, they moved beyond the text.

Historical Approach: Working Papers

With the text in the background, the Panel turned to historical sources to determine Article 9’s intent. Chief among them were the statute’s “working papers.” Generally speaking, these were documents recording the deliberations between the FIFA officers and committee members who drafted the statute. While the Panel did analyze information from after Article 9’s passage, they prioritized FIFA’s statements from the time before it implemented the rule.

2007 Granada Incident

The catalyst for Article 9 was the 2007 Granada incident. This refers to a dispute, which began when the owner of Granada 74, a club wandering through Spain’s regional leagues, purchased 2nd tier Ciudad de Murcia and moved the club over 400 km to Granada. The owner then renamed Murcia “Granada 74” but preserved its 2nd division status. Essentially, Granada jumped to the 2nd division through money and legal maneuvering, rather than on field results.

Spanish company law permitted Granada’s move. And in that vein, the Spanish league system granted the club a license to compete in the 2nd division. But the Spanish federation, later joined by FIFA and UEFA, believed Granada’s actions threatened the principle that promotion should be earned on the field. So the federation tried to bar the move, threatening to revoke sanctioning for officials to work Granada’s games. Believing its “promotion” was legitimate, Granada challenged the federation’s ban.

The matter wound its way through the dispute resolution process until, eventually, it landed at the CAS. For the federation, FIFA and UEFA, the problem was that none of them had rules banning clubs from purchasing promotion like Granada. Moreover, Spanish law allowed companies to change name, ownership and domicile. All this led the CAS Panel to side with Granada, finding the club’s move “legal” and, thus, allowable.

After the ruling, the possibility of future “Granada’s” haunted FIFA, which believed they would infringe the “principle” of “promotion only on sporting merit.”

With these concerns, the journey to Article 9 began. The goal was to provide FIFA and national associations a tool to block future Granada-like schemes.

The Three Main Sources

After consulting the relevant historical sources, the Panel concluded FIFA’s concerns about Granada-like schemes were limited to existing pro/rel systems. In addition, the Panel believed the sources demonstrated FIFA explicitly rejected using Article 9 to install a blanket requirement for countries to adopt pro/rel.

For the most part, the Panel relied on three historical sources: (1) the minutes from the FIFA Executive Committee’s October 29, 2007 meeting; (2) the minutes from the Executive Committee’s December 15, 2007 meeting; and (3) the minutes from the 2008 FIFA Congress.

First, on October 29, 2007, the FIFA Executive Committee approved Article 9 in principle. But before passage, Committee member Chuck Blazer, an American, objected. Blazer worried that, as it stood, the language would affect “the movement of clubs within leagues that did not have promotion and relegation.” The Executive Committee took Blazer’s concerns to heart, agreeing to review the language with an eye toward preventing any serious impact on these countries.

Second, at its December 15, 2007 meeting, the Executive Committee’s answered Blazer’s concerns by assuring him Article 9 would not affect countries without an open system. In fact, the committee found this so clear that it did not believe the statutory language needed to spell out an exception for those countries. Rather, Article 9’s title — “Principle of Promotion and Relegation” — was enough to demonstrate it could only apply to countries where pro/rel already existed. As such, any clause granting those countries explicit protection would be “superfluous.”

After this explanation, Michel Platini asked whether, nonetheless, FIFA would encourage countries with closed systems to open. He was told this was a “separate issue.” The Panel found this telling, as it demonstrated FIFA was not even committed to promoting open systems, let alone requiring them.

Third, at the 2008 FIFA Congress, John Collins, the USSF’s former general counsel and then a member of FIFA’s Legal Committee, proposed adding “where the principle existed” to Article 9’s final version. Collins worried the existing language would discourage investment in countries without pro/rel. The Legal Committee rejected the proposed addition, again, because any such language would be “superfluous.” Interestingly, the committee also rejected the rationale for Collins’ amendment — that the existing language would discourage investment — believing this only fed the problem of investors entering football purely for financial gain.

Based primarily on these three sources, the Panel concluded Article 9’s authors did not intend to require open systems in all countries. Rather, they only meant to block manipulation of existing pro/rel systems. Put another way, the drafters wanted to prevent a “Granada-like” situation in countries that “traditionally and consistently” applied pro/rel.

As such, the Panel rejected the Claimants request to install an open system in the United States.

Secondary Arguments

Estoppel

Beyond the statutory intent, the Panel ruled that estoppel also defeated the Claimants’ request. This form of estoppel behaves similarly to promissory estoppel in American law. That is, when one party’s promise induces a second party to act, the first party is bound by the promise.

Here, FIFA told the USSF and its representatives that Article 9 did not impose a pro/rel requirement. These assurances induced the USSF and MLS to solicit investors who believed their teams would never be relegated. So imposing pro/rel now would be unfair to those who acted on the belief it would not exist.

Changed Circumstances

The Panel addressed two arguments that, even if Article 9 did not apply to the US when adopted, it did now because the US system had changed.

First, the Claimants argued that, while Article 9 may not have applied to the US league system when it was passed, the league system has changed significantly since then. As such, the exemption created in 2007 no longer applies.

This argument relied on the portion of the December 15, 2007 Executive Committee minutes that reads “the Executive Committee unanimously agrees that the existing set-up of leagues in the USA and Australia would not be affected by the new provisions.” The Claimants appeared to seize on the word “existing,” contending it means pro/rel could be implemented if those league set-ups changed.

The Panel disagreed. Specifically, they found no indication FIFA intended to retract the closed countries’ exemptions if their league systems changed. Further, FIFA considered “where the principle existed” superfluous because it was clear the principle only applied where pro/rel had already been implemented. As for the US, it could not have implemented pro/rel based on sporting merit because it never introduced pro/rel.

The second argument goes a step beyond the first. Claimants contend the US league system has not only changed but changed to include movement between leagues. In short, the US has implemented a pro/rel system because teams in lower leagues can buy their way into higher leagues — a practice that did not exist prior to 2009. As such, the US system practices pro/rel, only without considering sporting merit.

Again, the Panel disagreed. While conceding teams can rise to the top division by paying a fee (and, in most cases, building a new stadium), the Panel determined this was “not a system of promotion and relegation based on sporting merit.” Rather, MLS has always been a closed league, a fact well known to FIFA when it crafted Article 9. Thus, the current US system falls within Article 9’s exemption for existing closed leagues.

Bottom Line

The Panel’s interpretation of Article 9 is best understood as the following:

The historical record establishes that Article 9 is limited to situations closely resembling the Granada incident. That is, Article 9 addresses clubs that circumvent open systems based on sporting merit. Or put another way, it is meant to close loopholes which might allow clubs in those systems to gain promotion primarily through non-sporting factors. Conversely, Article 9 is not meant to address clubs which gain promotion in accordance with their federation’s rules — even if those rules allow promotion entirely through non-sporting factors.

The comparison between Granada and, for example, Minnesota United’s promotion to MLS in 2017 may help illustrate the Panel’s point. Granada exploited a quirk in Spanish company law to do what, at least in practice, the Spanish federation did not allow: gain promotion without earning it on the field. In the Granada case, the Spanish federation would have needed an Article 9 because, although it operated a sporting merit system, it had no rule preventing teams from buying promotion. By contrast, in 2016, Minnesota United finished 5th in the 2nd tier North American Soccer League. But for reasons wholly detached from on-field performance, they leapfrogged the top four teams and moved to MLS. Taking the Panel’s reasoning, this differs from the Granada incident because the USSF never operated an open, sporting merit system. So unlike Granada, which circumvented at least the established practice in Spain, Minnesota United did not circumvent the USSF’s system to gain promotion.

In addition, the Panel’s decision did include a trace of hand-washing — as in, they deferred to FIFA’s position because Article’s 9’s text and history were somewhat ambiguous. Here, the standard of review played an understated but powerful role. Essentially, the standard meant the Claimants needed more than a good argument on Article 9’s meaning. They needed an unassailable argument. And given the ambiguity, this was almost impossible.