The case involves Galatasaray, a Turkish football club, challenging UEFA's decision to exclude it from participating in UEFA competitions due to breaches of the Club Licensing and Financial Fair Play (CL&FFP) Regulations. The dispute was brought before the Court of Arbitration for Sport (CAS), which examined the compatibility of UEFA's regulations with EU law, particularly regarding competition and fundamental freedoms. The CAS panel, composed of Prof. Luigi Fumagalli, Prof. Bernard Hanotiau, and Mr. Olivier Carrard, concluded that EU competition law and fundamental freedoms under the Treaty on the Functioning of the European Union (TFEU) qualify as foreign mandatory rules under Swiss private international law, which the CAS must consider. The panel found that the CL&FFP Regulations did not restrict competition "by object" or "by effect," as their primary aim was to ensure financial stability among clubs rather than distort competition. The "break-even" rule, which limits clubs' spending to €5 million over revenues within a three-year assessment period, was deemed flexible and not a rigid spending cap. The regulations were also found not to hinder competition on the pitch or in player acquisitions, nor did they discriminate based on nationality or restrict fundamental EU freedoms such as the movement of workers, services, or capital.
The dispute arose from UEFA's 2012 introduction of the CL&FFP Regulations to promote financial sustainability, enforced by the Club Financial Control Body (CFCB). Galatasaray had entered a settlement agreement with UEFA in 2014 after breaching the break-even requirement but later faced exclusion for non-compliance. The club's financial submissions revealed a break-even deficit exceeding the acceptable deviation by €134.2 million and employee benefit expenses of €95.5 million, breaching the settlement terms. An independent audit confirmed these findings, leading the CFCB to impose sanctions, including a two-season exclusion from UEFA competitions, a €65 million cap on employee benefit expenses, and a €5,000 fine. Galatasaray appealed to the CAS, arguing that the sanctions were illegal due to the alleged illegality of the 2012 CL&FFP Regulations and disproportionate. The club also sought a stay of the CFCB decision and requested compensation for legal fees.
The CAS proceedings involved jurisdictional and procedural disputes, including the language of arbitration, with Galatasaray preferring French and UEFA insisting on English. The CAS President ruled that English would be the procedural language but allowed Galatasaray to submit pleadings in French without translation. The hearing took place in Paris on 16 June 2016, with both parties represented by legal counsel and club officials. The CAS's jurisdiction was established under Article 62 of the UEFA Statutes, which allows appeals to CAS against UEFA decisions, provided internal remedies are exhausted. The appeal was deemed admissible as it was filed within the stipulated ten-day period. The applicable law was determined to be Swiss law under Article R58 of the CAS Code, though the Panel also considered EU law, particularly competition and freedom provisions under the TFEU.
Galatasaray's primary argument was that the CL&FFP Regulations, particularly the break-even rule, were illegal under EU and Swiss law, violating Article 101 TFEU (prohibiting anti-competitive agreements) and other provisions. The club contended that the sanctions based on these regulations were therefore unlawful. Alternatively, if the regulations were deemed legal, Galatasaray argued the sanctions were disproportionate. UEFA maintained that the dispute centered on Galatasaray's breach of the Settlement Agreement, governed by Swiss law, and dismissed the relevance of EU law in this context, though it did not contest the Panel's authority to consider it.
The Panel identified three key issues: the legality of the CL&FFP Regulations and Settlement Agreement, whether Galatasaray breached them, and if the sanctions were disproportionate. The Panel found that the CL&FFP Regulations did not violate EU competition law or fundamental freedoms, as they aimed to ensure financial stability and fair competition without imposing disproportionate restrictions. The Panel also rejected Galatasaray's claims of mitigating factors, such as external events like the Syrian refugee crisis and economic downturns, due to lack of specific evidence linking these factors to the financial shortfalls. The sanctions were deemed proportionate, especially since this was Galatasaray's second violation of FFP rules.