Introduction: FIFA’s TPO ban and its compatibility with EU competition law.
Day 1: FIFA must regulate TPO, not ban it.
Day 2: Third-party entitlement to shares of transfer fees: problems and solutions
Day 4: Third Party Investment from a UK Perspective.
Day 5: Why FIFA's TPO ban is justified.
Editor’s note: Ariel N. Reck is an Argentine
lawyer specialized in the football industry. He is a guest professor at ISDE’s
Global Executive Master in International Sports Law, at the FIFA CIES Sports
law & Management course (Universidad Católica Argentina) and the Universidad
Austral Sports Law diploma (Argentina) among other prestigious courses. He is a
regular conference speaker and author in the field of sports law.
Being an Argentine lawyer, Ariel will focus on the impact FIFA’s TPO ban
will have (and is already having) on South American football.
Introduction
Before discussing the
impact of the TPO ban, it is important to highlight that the purposes of TPO in
South America are somehow different than in Europe. Here “economic rights”
(that’s how we call it) are basically assigned in four different moments and/or
situations:
First, when a youth player is first registered for the club at amateur
level. This is a recognition to the person or entity that brings the player to
the club and is usually between 10% and 20% of a future transfer. This practice
widens the club’s scouting net and attracts promising young players from the
small clubs to the big ones. The percentage can be assigned to the former club
of the player, a third person who brings the player (a scout / intermediary) or
to the player’s family if he comes as a free or unregistered player. In these cases
the position of the beneficiary is really passive and the assigned rights are
fragile and dependent of many factors (the player is not even a professional
yet).
A second stage in which rights are assigned to third parties is when the
club needs money to cover other obligations, unrelated to that particular
player. Every club has one or more starlets and investors are willing to take
the risk and acquire a percentage of the player’s economic rights. For the
club, the sale of portions of the economic rights helps to balance its books
and provides an alternative source of credit. In this case there’s no
“standard” percentage, it depends on the money the investor is willing to pay,
the potential value of the player and the needs of the club. The influence,
or the ability to “force” a transfer of the player, of the third party is
also subject to each particular agreement, with a direct correlation between
percentage owned and influence.[1]
The third situation is when a club wants to hire a player but does not
have the financial resources to do it. The rights of such a player might be
owned by a company or a company might be willing to acquire the player’s rights
from the former club and bring him to the new club. Consequently, the new club
is used as showcase only. Under this situation, the player is usually hired for
a single season with an option for the purchase of a percentage in favor of the
new club, triggering –if executed- a long term employment contract. Sometimes,
even if the option is not executed the TP owner recognizes the club a small
percentage (around 10%) as “showcase rights” in case the player is immediately
hired with a long term contract by another club after the termination of his
one season contract. Under these circumstances, the influence of the TP owner is
clearly strong, irrespective of how the relevant documents are drafted.
Clubs could also turn to selling economic rights to third parties in
order to cancel debts or to seduce a player for a contractual renewal. A club accepts to assign a share to the player against
previous salary debts or in order to convince him to renew the contract without
a mayor salary raise. If the club cannot pay the amounts wanted by the
player to renew, it offers to assign the player a percentage of his own
transfer. In most South American countries, the law or a collective bargaining
agreement grants players a minimum percentage of the proceeds of his own
transfer (between 10% and 20% depending the country)[2],
but this additional assignment is heavily used to satisfy a player’s demands at
a renewal of the employment contract.
With so many purposes, and taking into account the financial needs of
clubs, the lack of alternative sources of financing and the number of South
American players transferred each year, it is obvious that the use of TPO in
South America is definitively widespread. Therefore, the impact of the ban will
be certainly important, especially in the first years when clubs have not yet
found alternative forms of financing.
The impact of the FIFA Ban
The situation is aggravated by the short transitional period established
by FIFA. While previous statements of FIFA officials suggested a period of 3 to
4 seasons[3],
the FIFA Circular letter 1264 reduced it to just four months.
It is hard to predict the effectiveness of the prohibition. The current
scenario shows many parties looking for forms or mechanisms to circumvent the
prohibition, while others are trying to challenge it before the courts. If we
consider the experience of art.18bis of the FIFA Regulations on the Status and
Transfer of Players (RSTP) (an article included in the FIFA rules right after
the Tévez affair as an attempt to protect the independence of clubs in its
transfers decisions limiting the power to force a transfer, third parties
usually had in TPO agreements), the forecast for the effectiveness of art.18ter
is not good. But, as we will show, in the case of art.18ter there’s a clear new
impulse and moreover, UEFA stands strongly behind the prohibition. Therefore,
in my opinion, we can expect a different outcome. I think the ban will be especially effective in cases
of players involved in transfers from South America to the European leagues.
Transfers to Portugal, Spain or Greece (countries that relied on TPO in the recent
past) will be heavily scrutinized. Nonetheless, it is unclear whether at domestic
level, especially in South America, the practice will be banned with similar
efficiency or if it will continue secretly with limited or no control by the
national Associations. Some federations already implemented their own form of
TPO ban (even when art.18ter RSTP is mandatory at national level). Brazil was
one of the pioneers[4]
and in Argentina, the fiscal authorities, passed a regulation banning TPO
agreements.[5]
As to the ways
to try to circumvent the TPO ban, I think we will see a raise in the use of “bridge
transfers”, which is basically the registration of a player in a club just to
cover the TPO with a federative “shell”. With this maneuver, the TP owner
artificially enjoys all the benefits of being a club, like retaining a
percentage of the player’s future transfer or controlling the player’s career
by signing a long term contract with a huge buyout clause loaning the player to
different clubs each year.[6] According
to the FIFA regulations any club that had ever registered the player is not a
“third party” (see definition 14[7]).
There is no further requirement, no “sporting interest” in the registration or
playing time, the simple act of registration allows a club to have a share of
the player’s future transfers. To this regard, while it is true that FIFA
already sanctioned clubs for “bridge transfers”[8],
it was only an isolated case (still pending at CAS) and we can see examples of patent
“bridge transfers” in every transfer window and in the top-5 leagues, not just
in minor competitions.
Another way to
deceive TPO is to assign a share to the player and a further (hidden)
assignment from the player to a third party. At this point, a big question arises:
is the player a third party according to the FIFA regulations? Can a club
assign a percentage of the player’s future transfers to the player himself?
As said, the opportunity for a player to profit from his own transfer is a labour
right in many South American countries. While South American employment laws,
statutes and/or CBAs tend to fix a minimum percentage of the transfer fee for
the player, there is no cap and in theory a player can receive up to 100% of
the transfer price.
The FIFA regulations
only exclude the two clubs involved in a transfer and the previous clubs where
the player was registered from being a third party. Hence, in principle, the
player seems to be a “third party” too.
But art.18ter provides
that “no club or player shall enter into an agreement with a third
party”, based on the
wording of this provision it is clear that a player should not be considered a
“third party”. Moreover, the player is a necessary party in every transfer
agreement and he is also subject to sanctions if he violates the aforementioned
FIFA prohibition on TPO according to paragraph 6 of art.18ter.
In addition,
the fact that in many South American countries the player’s entitlement to a
share of his own transfer is a labour right, a systematic interpretation of
art.18ter makes it plausible to sustain the validity of the assignment of a
percentage of the transfer fee to the player. In that regard, it is important
to recall that FIFA’s prohibition has in principle effect only at federative
level. This means that at civil level, any assignment will still be valid and
enforceable.
Furthermore,
the jurisprudence of the majority of the South American countries holds that federative
rules have only effect within the framework of the federation and cannot
contradict the civil legislation, of a higher hierarchy.
Argentina is an
exception in South America. Ordinary Argentine courts settled that Federative
rules are the “lex specialis” in
relation to the general rules of the civil code. Therefore, if the regulations
of FIFA and/or the Argentine Federation prohibit TPO, any contract in that
sense will be null and void, even when under our civil code the assignment of a
future transfer is perfectly valid.
Saved for this
exception, the result of this is that FIFA’s remedy might be worse than the disease.
Since FIFA can only sanction its own members (meaning clubs and players), if a
club or a player enters into a TPO agreement, such player or club might be
subject to disciplinary sanctions and the contract will still be valid and
enforceable.
It is not unthinkable
that a player or a club surrendering to the need of funds and signing a TPO
agreement despite FIFA’s ban, thereby placing himself in a difficult position.
The counterpart (the third party) might force the compliance of the agreement
by threatening with reporting the deal to FIFA. In the end, the ban will have
the opposite effect to what was sought: Players and clubs will be more
vulnerable in their relationship with the third-party than before the
introduction of art.18ter RSTP.
As said, it is hard
to think that clubs will immediately find an alternative source of funding or
will be able to live within their own means. Therefore, it is probable that
clubs will try to circumvent or challenge the rule.
Again, the
final consequences are hard to predict, but will of an important magnitude. TPO
is not just a financing method to bring players to clubs, sharing the risk with the
investor, it is also a way to get cash-flow without the need to transfer the
player to another club. Furthermore, it is an essential part of the scouting
method that widens the club’s network, attracts young talents to the clubs and is
also a way to cancel debts towards the player or to achieve a renewal of his
contract.
Conclusion
To conclude, I
don’t think the TPO ban is the best way to achieve the –alleged- objectives
declared by FIFA. Obligation to disclose, controlled payments (via TMS for
example) and other regulatory approaches would have been better options. The
pressure from an investor could have been diluted by setting a limit (maximum percentage
or maximum number of players under TPO) and the reality is that the pressure to
“force” a transfer comes in general from other actors, mainly the player and/or
his agent.
Now the new “pushers”
will be the European clubs. How will it be possible for an Argentine club to
refuse a -say- € 5 million transfer for a 19 year old player even if the club
knows his value will double or triple if he stays at the club? With the TPO ban
the club cannot rely on an investor paying, for example, € 3 million for 50% of
the player's economic rights to “hold on” a few years. It is worth remembering
that Chelsea tried to seal the transfer of Neymar for € 20 million when he was
18. However, Santos managed to reject such offer relying on TPO.
South American
players account already for approximately 25% of all the international
transfers worldwide[9],
after the TPO ban this percentage will certainly raise.
As to the “morals”
arguments, recently reiterated by UEFA’s president Platini who said TPO is “a
form of slavery”[10],
I believe they are just a fallacy. Every transfer
needs the player’s consent and the investor owns a share of the profit of a
potential future transfer, not a part of the human being. Otherwise, for clubs,
owning 100% of a human being would be equally immoral.
Moreover, other
types of assignments, like third party litigation funding, are legal in many
countries, including the UK and France. The similarities and
analogies than can be made with TPO are immense and nobody is claiming third
party litigation funding is a way of “owning
a person’s justice”.
With the
introduction of the Financial Fair Play Regulations European clubs and
federations are looking into ways to reduce expenditures and also scrutinizing
what the “neighbors” are doing. Clubs want cheaper players and clubs from countries
were TPO was long ago banned had a handicap for UEFA spots against clubs from
countries were TPO was allowed and relied on TPO to acquire players.[11]
The TPO ban serves both objectives: A reduction in the player’s transfer price
and an end to the Spanish and Portuguese transfer “tactics” that relied heavily
on TPO.
Also, the
inclusion or exclusion of the player in the definition of “third party”
triggers conflictive issues. In most South American countries national labour laws or CBAs allow the player to
obtain a percentage of the proceeds of his own transfer. If FIFA tries to
extend the definition of “third party” to include players, this might certainly
prevent a complete implementation of FIFA´s TPO ban in South America.
As a conclusion
I can say that, for South American clubs, the TPO ban just changed the “predator”
in the transfer market. Our clubs can now stand stronger against investors, but
as counter-effect they are in a much weaker position against European clubs.
[1]
For a discussion on “buy-sell” clauses (the core of any TPO agreement) and
whether they constitute prohibited influence see my opinion: Do “Buy-Sell” Clauses In Third Party
Ownership Agreements Constitute Undue Influence Under FIFA’s Art 18bis?
http://www.lawinsport.com/blog/argentine-sports-law-blog/item/do-buy-sell-clauses-in-third-party-ownership-agreements-constitute-undue-influence-under-fifa-s-art-18bis
[2] Brazil, Peru and Bolivia are exceptions to this rule; no such right is
established in their regulations. In Argentina the minimum percentage is 15%
according to art.8 of the CBA 557/2009 http://infoleg.mecon.gov.ar/infolegInternet/anexos/155000-159999/158453/norma.htm , in Paraguay 20% for international transfers, art.12 law 5322 from 29th October 2014 http://www.escritosdederecho.com/2014/11/ley-5322-del-29-10-2014-estatuto-del-futbolista-profesional.html , in Uruguay 20%, art.34 of the Professional Footballers Statute http://www.mutual.com.uy/index.php?option=com_content&view=article&id=49&Itemid=83 , in Ecuador 15%, Chile 10% law 20.178 http://www.sifup.cl/wp-content/uploads/2014/12/Ley-20178-Estatuto-Laboral-del-Futbolista-Profesional-Chileno.pdf , and Colombia 8% art.14 Colombian Players Status Regulations
http://fcf.com.co/index.php/la-federacion-inferior/normatividad-y-reglamento/158-estatuto-del-jugador
[3] http://www.fifa.com/aboutfifa/organisation/footballgovernance/news/newsid=2463828/
[4] http://www.insideworldfootball.com/world-football/south-america/16188-brazil-conforms-and-sets-date-for-ending-tpo-funding-practices
[5] General Resolution 3740/2015 http://eco-nomicas.com.ar/7183-rg-3740-afip-ganancias-transferencia-de-jugadores
[6] For more on “Bridge Tranfers” http://www.lawinsport.com/sports/football/item/what-is-a-bridge-transfer-in-football
[7] “Third party: a party other than the two clubs
transferring a player from one to the other, or any previous club, with which
the player has been registered.”
[8] http://www.fifa.com/aboutfifa/organisation/news/newsid=2292724/index.html
[9] Source: FIFA TMS Global Transfer Market Report 2015, page 78.
[10] http://in.reuters.com/article/2015/03/16/soccer-platini-tpo-idINKBN0MC1B220150316
[11] http://www.e-comlaw.com/world-sports-law-report/article_template.asp?Contents=Yes&from=wslr&ID=1388