Introduction: The new WADA Code 2015
Day 1: The impact of the revised World Anti-Doping Code on the work of National Anti-Doping Agencies
Day 2: The “Athlete Patient” and the 2015 World Anti-Doping Code: Competing Under Medical Treatment
Day 3: Proof of intent (or lack thereof) under the 2015 World Anti-Doping Code

Editor's note
Mike Morgan is the founding partner of Morgan Sports Law LLP. His practice is focused exclusively on the sports sector. He advises on regulatory and disciplinary issues and has particular experience advising on doping and corruption disputes.

Mike acted on behalf of National Olympic Committees at three of the last four Olympic Games and has represented other sports bodies, clubs and high profile athletes in proceedings before the High Court, the FIFA Dispute Resolution Chamber, the American Arbitration Association and the Court of Arbitration for Sport.

I. Introduction

According to the World Anti-Doping Agency (“WADA”), the 2015 World Anti-Doping Agency Code (the “2015 Code”), which came into effect on 1 January 2015,  is a “stronger, more robust tool that will protect the rights of the clean athletes”[1]. Among the key themes of the revised Code, is the promise of “longer periods of Ineligibility for real cheats, and more flexibility in sanctioning in other specific circumstances”[2].

While Article 10 of the 2015 Code unquestionably provides for longer periods of ineligibility, the validity of WADA’s claim that the harsher sanctions will be reserved for “real cheats” depends partly on how one defines the term “real cheat”, and partly on how the 2015 Code’s mechanisms for reducing sanctions are to be interpreted.

This blog reflects on the totality of the context from which the current sanctions regime arose.  That is important because Article 10 will have to be applied in a manner consistent with that context in mind if the 2015 Code is to become the tool promised by WADA and if it is to avoid the scrutiny of the courts.

II. Context

A.   Katrin Krabbe

In the lead up to the adoption of the first version of the WADA Code (the “2003 Code”), there was considerable debate as to what length of sanction could lawfully be imposed on an athlete for a first violation[3].

The decision finally to settle on a two-year ban for first offences was heavily influenced by the findings of the Munich Courts in the case of Katrin Krabbe, that a suspension exceeding two years was disproportionate[4]:

(a)           The Regional Court held that a two-year suspension imposed on an athlete for a first offence “represents the highest threshold admissible under fundamental rights and democratic principles”.[5]

(b)           The High Regional Court held that the three-year ban imposed by the IAAF “was excessive in respect of its objective. Such a rigid disciplinary measure as a sanction for a first sports offence is inappropriate and disproportionate”.[6]

And so it came to pass that a first violation under Article 10.2 of the 2003 Code would be punished with a two-year sanction. Various legal opinions procured by WADA between 2003 and 2008 affirmed the position that a two-year sanction for a first violation (1) was a significant incursion on the rights of the individual affected; and (2) was likely the limit of the severity that could be imposed in the absence of aggravating circumstances[7].

B.   Specified Substances

The 2003 Code proved somewhat inflexible, which resulted in two-year bans for unintentional and minor anti-doping rule violations. One of the starkest examples of that inflexibility arose in CAS OG 04/003 Torri Edwards v IAAF & USATF.

Edwards had consumed glucose powder that, unbeknownst to her, contained the stimulant nikethamide. A two-year ban was imposed on her on the basis that she could not meet the thresholds for “No Fault” and “No Significant Fault” and despite the fact that she had, in the words of the CAS panel, “conducted herself with honesty, integrity and character, and that she has not sought to gain any improper advantage or to ‘cheat’ in any way”[8].

Ms Edwards’ case became a cause célèbre, leading the IAAF to lobby WADA to have nikethamide and other similar stimulants reclassified as Specified Substances. The then vice-president of the IAAF, Dr Arne Lungqvist explained as follows:

I asked Torri Edwards whether she would allow me to use her case as an example of the importance of making some sort of differentiation between those weak stimulants that you can get over the counter by accident, carelessness, negligence or whatever.  We are not after those who are negligent.

WADA acceded to the IAAF’s lobbying and downgraded nikethamide to the Specified Substance list in September 2005. The IAAF Council shortly thereafter reinstated Edwards to competition further to the doctrine of lex mitior. Following Edwards’ reinstatement, Dr Lungqvist explained as follows:

The IAAF wishes to see strong penalties for real cheats. This was a different case, […]  I did not feel comfortable when I had to defend the then-existing rules against her at the CAS hearing in Athens.

I judge that Torri has paid a high price for having inadvertently taken a particular substance at the 'wrong' time, shortly before [the reclassification] and from now on such an intake would result in a warning only. (Emphasis added)

Four years later, WADA went one step further and, with the introduction of the 2009 version of the WADA Code (the “2009 Code”), broadened the list of substances that would be categorised as Specified Substances, promising “lessened sanctions….where the athlete can establish that the substance involved was not intended to enhance performance” under Article 10.4[10].  

The aim was to avoid the likes of the Edwards case. Indeed, a number of cases determined under the 2009 Code which involved the same glucose brand that had landed Edwards with a two-year ban in 2004, resulted in periods of ineligibility ranging between 0 – 6 months[11].

C.   The rise and fall of “aggravating circumstances”

The primary themes of the 2009 Code were, according to WADA, “firmness and fairness”. “Fairness” was to be reflected by the broadening of the Specified Substance list, while “firmness” was intended to manifest itself through the concept of “aggravating circumstances” [12].  

The presence of “aggravated circumstances” permitted Anti-Doping Organizations (“ADOs”) to increase periods of ineligibility beyond the standard two-year ban up to a maximum of four years[13].

A legal opinion commissioned by WADA in relation to the “aggravated circumstances” provisions (the “Third WADA Legal Opinion”) noted as follows[14]:

91. […] it is clear that the intention to enhance performance is not in and-of-itself an aggravating circumstance.

92. […] This provision makes it clear that cheating is an important element of the notion of aggravating circumstances. However, the mere fact of cheating alone is not sufficient. Additional elements are required.

93. The essence of the concept of aggravating circumstances is thus a qualified kind of cheating, which involves an additional element. (Emphasis added)

Not only, therefore, was actual cheating required to invoke the provision but there needed to be something more than the mere fact of cheating. Examples provided by the 2009 Code included being part of a doping scheme or using multiple prohibited substances[15]. 

The “aggravated circumstances” provision was rarely invoked and, when it was, it rarely resulted in the maximum increase[16]. That ultimately led to the removal of the “aggravated circumstances” provision from the 2015 Code and the introduction of standard four-year sanctions, explained as follows by WADA[17]:

There was a strong consensus among stakeholders, and in particular, Athletes, that intentional cheaters should be Ineligible for a period of four years.  Under the current Code, there is the opportunity for a four-year period of Ineligibility for an Adverse Analytical Finding if the Anti-Doping Organization can show “Aggravating Circumstances.” However, in the more than four years since that provision has been part of the Code, it has been rarely used. (Emphasis added)

The decision to double the standard two-year sanctions to four years may have surprised anyone who had ever read the Third WADA Legal Opinion, since that opinion had expressly cautioned as follows:

138. […] one should bear in mind that a four-year ban would most often put an end to an athlete’s (high level) career and thus be tantamount to a life ban. Therefore, an aggravated first offence could de facto be punished as harshly as numerous second offences (Article 10.7.1) and almost all third offences (Article 10.7.3).

139. This could raise problems if the ineligibility period were automatically of four years in the presence of aggravating circumstances. In reality, Art. 10.6 provides for an increased suspension of up to four years, which means that the adjudicating body is afforded sufficient flexibility to take into account all the circumstances to ensure that aggravating circumstances do not systematically result in a four-year period of ineligibility. (Emphasis added)

D.   Proportionality

The principle of proportionality plays an important role in the determination of sanctions applicable in doping matters. The principle pervades Swiss law[18], EU law[19] and general principles of (sports) law[20].  

The CAS itself has consistently measured sanctions imposed on athletes against the principle of proportionality both before the inception of the WADA Code and since.

(a)           Pre-WADA Code: the anti-doping rules of many sports prior to the creation of the WADA Code mandated fixed sanctions without the possibility of reductions. The CAS nevertheless sometimes reduced these sanctions on the basis they were not proportionate.[21]

(b)           Post-WADA Code: The WADA Code introduced mechanisms by which sanctions could be reduced or eliminated.  However, the CAS has made clear that the introduction of these mechanisms does not remove the obligation of disciplinary panels to measure the sanctions applied in any particular case against the principle of proportionality. In CAS 2005/A/830 Squizzato v. FINA, the CAS held that:

10.24 […] the Panel holds that the mere adoption of the WADA Code […] by a respective Federation does not force the conclusion that there is no other possibility for greater or less reduction a sanction than allowed by DC 10.5. The mere fact that regulations of a sport federation derive from the World Anti-Doping Code does not change the nature of these rules. They are still – like before – regulations of an association which cannot (directly or indirectly) replace fundamental and general legal principles like the doctrine of proportionality a priori for every thinkable case.

Though the 2015 Code asserts that it “has been drafted giving consideration to the principles of proportionality and human rights”[22], that obviously does not mean that proportionality no longer plays a part in the assessment of sanctions for the same reasons propounded by the CAS in Squizzato. Indeed, the 2015 Code itself recognises that it “is intended to be applied in a manner which respects the principles of proportionality and human rights”[23]. Moreover, the most recent CAS decisions in which the principle of proportionality was applied concerned the sanctioning regimes of the 2003 and 2009 Code, both of which mandated default sanctions of two years, not four years[24].  The principle of proportionality is, therefore, arguably even more relevant now than it previously was.

III. Comment

While the 2015 Code does have more mechanisms by which to modify the default sanctions than in previous versions of the WADA Code, that is partly because the default sanctions with regards to most of the violations have doubled[25]:

Athletes accused of committing a violation under Articles 2.1, 2.2, 2.3 or 2.6 are now in a position in which they are required to meet the Article 10.2 thresholds regarding “intent” simply to get them back to the two-year default sanctions that would have applied under previous versions of the Code[26].

If the 2015 Code is to become the tool promised by WADA and if it is to avoid or survive legal challenges, tribunals will need to ensure that their interpretations of the reduction mechanisms, such as those contained at Article 10.2, do not result in disproportionate sanctions.

The parameters within which the proportionality of a sanction falls to be measured were described as follows by the panel in CAS 2005/C/976 & 986 FIFA & WADA:

139. A long series of CAS decisions have developed the principle of proportionality in sport cases. This principle provides that the severity of a sanction must be proportionate to the offense committed. To be proportionate, the sanction must not exceed that which is reasonably required in the search of the justifiable aim. (Emphasis added)

The evaluation of whether a sanction is proportionate therefore begins with the identification of the “justifiable aim”. According to WADA, the increased sanctions were intended to target “intentional cheats”. That is echoed by the wording of Article 10.2.3 of the 2015 Code, which provides as follows:  

As used in Articles 10.2 and 10.3, the term “intentional” is meant to identify those Athletes who cheat. The term, therefore, requires that the athlete or other Person engaged in conduct which he or she knew constituted an anti-doping rule violation or knew that there was a significant risk that the conduct might constitute or result in an anti-doping rule violation and manifestly disregarded that risk [….] (Emphasis added)

The final sentence emphasised above is, arguably, open to interpretation.  However, the first line identifies the overarching aim of the provision – i.e. “the term ‘intentional’ is meant to identify those athletes who cheat”.

According to the Oxford Dictionary, a “cheat” is a “person who behaves dishonestly in order to gain an advantage” and the act of “cheating” amounts to “a fraud or deception”.  A reasonable inference, therefore, is that athletes who “cheat” are athletes who have acted knowingly and dishonestly to gain an unfair advantage.

Article 10.2 cannot, therefore, be intended to punish careless athletes.  Bearing in mind the limits pronounced by the courts in Krabbe and bearing in mind the “justifiable aim”, any interpretation of the provision that would result in a four-year ban for nothing more than careless – or even reckless, but otherwise honest - conduct would risk inviting the sort of scrutiny exercised by the German courts in the Pechstein[27] and Krabbe cases.

Likewise, the interpretation of the other reduction mechanisms, such as Article 10.5 (“No Significant Fault or Negligence”), will require the same degree of pragmatism.  If the parameters for “No Significant Fault” were to be applied as strictly today as they were in the Edwards case, anti-doping would end up right back to where it was in 2004, when the Code’s sanctioning regime was perceived to be so inflexible that it had to be overhauled in 2009. Assuming that the aim of the 2015 Code is not to take 11 years’ worth of backward steps, tribunals will have to ensure that “No Significant Fault” is interpreted in a manner that fulfils WADA’s promise of “greater flexibility”, particularly in cases involving Specified Substances and Contaminated Products[28].

IV. Concluding Remark

The 2015 Code has the potential to become the fairest WADA Code to date. However, it also has the potential to be the cruelest. Interpreting it in a manner consistent with the totality of the context from which it was conceived is the surest way to ensure that the right version prevails.

[1] https://www.wada-ama.org/en/what-we-do/the-code

[2] https://wada-main-prod.s3.amazonaws.com/wadc-2015-draft-version-4.0-significant-changes-to-2009-en.pdf

[3] See (1) http://library.la84.org/OlympicInformationCenter/OlympicReview/1999/OREXXVI26/OREXXVI26s.pdf; and (2) http://library.la84.org/OlympicInformationCenter/OlympicReview/1999/OREXXVI26/OREXXVI26t.pdf

[4] See Kaufmann-Kohler, G., Rigozzi, A., and Malinverni, G., “Doping and fundamental rights of athletes: comments in the wake of the adoption of the World Anti-Doping Code”, I.S.L.R. 2003, 3(Aug), 39–67 *61

[5] Krabbe v. IAAF et. al., Decision of the LG Munich of 17 May 1995, SpuRt 1995 p. 161, p. 167

[6] Krabbe v. IAAF et. al., Decision of the OLG Munich of 28 March 1996, SpuRt 1996 p. 133, 138

[7] See (1) Legal Opinion on the Conformity of Certain Provisions of the Draft World Anti-Doping Code with Commonly Accepted Principles of International Law, dated 23 February 2003, paragraphs 142 and 143; (2) Legal Opinion on whether Article 10.2 of the World Anti-Doping Code is compatible with the Fundamental Principles of Swiss Domestic Law, dated 25 October 2005, paragraph 3 (b) (aa) at page 26 and paragraph 3. (f) (aa) at page 32; and (3) Legal Opinion on the Conformity of Article 10.6 of the 2007 Draft World Anti-Doping Code with the Fundamental Rights of Athletes, dated 13 November 2007, at paragraphs 33, 114, 138 and 139

[8] See paragraph 5.8 of CAS OG 04/003 Torri Edwards v IAAF & USATF

[9] See IAAF press release dated 22 November 2005

[10] 2009 Code, Article 10.4 (“Elimination or Reduction of the Period of Ineligibility for Specified Substances under Specific Circumstances”)

[11] See (1) CAS 2011/A/2493 Antidoping Switzerland v/ X; (2) CAS 2013/A/3327 Marin Cilic v. International Tennis Federation & CAS 2013/A/3335 International Tennis Federation v. Marin Cilic; (3) AFLD Decision No. 2011-71 dated 7 July 2011; (4) AFLD Decision No. 2009-50 dated 10 December 2009

[12] Article 10.6 of the 2009 WADA Code (Aggravating Circumstances Which May Increase the Period of Ineligibility)

[13] Note that Violations under Articles 2.7 (Trafficking) and 2.8 (Administration) were not subject to the application of Article 10.6 since the sanctions for those violations (four years to life) already allowed discretion for aggravating circumstances

[14] Legal Opinion on the Conformity of Article 10.6 of the 2007 Draft World Anti-Doping Code with the Fundamental Rights of Athletes, dated 13 November 2007

[15] See commentary to Article 10.6 of the 2009 Code

[16] See CAS 2013/A/3080 Alemitu Bekele Degfa v. TAF and lAAF for a detailed assessment by the CAS of the “aggravated circumstances” provision

[17] WADA, Significant Changes between the 2009 Code and the 2015 Code, Version 4.0, 1 September 2013

[18] See paragraph 124 of CAS 2005/C/976 & 986 FIFA & WADA

[19] See paragraphs 47 and 48 of Case C-519/04 P Meca-Medina & Majcen v Commission [2006] ECR I-6991

[20] See paragraph 83 of the First WADA Legal Opinion

[21] See (1) CAS 1996/56 Foschi v. FINA; (2) CAS 2002/A/396 Baxter v. FIS; (3) CAS 2001/A/337 B. / FINA

[22] See page 11 of the 2015 Code - “Purpose, Scope and Organization of the World Anti-Doping Program and the Code”

[23] See the Introduction at page 17 of the 2015 Code

[24] See, for instance (1) CAS 2010/A/2268 I. v. FIA; and (2) TAS 2007/A/1252 FINA c. O. Mellouli & FTN

[25] Note that the table only reflects the default sanctions applicable before consideration of any of the mechanisms intended to increase or decrease those sanctions

[26] Note that article 10.2 only applies to those violations. For a detailed assessment of Article 10.2, see Rigozzi, Antonio and Haas, Ulrich and Wisnosky, Emily and Viret, Marjolaine, Breaking Down the Process for Determining a Basic Sanction Under the 2015 World Anti-Doping Code (June 10, 2015). ISLJ, (2015) 15:3-48

[27] See (1) Landesgericht (LG) München, 26. February 2014, 37 O 28331/12; and (2) Oberlandesgericht (OLG) München, 15 January 2015, Az. U 1110/14 Kart

[28] Notably, the concept of “No Significant Fault or Negligence” in previous versions of the Code was limited to ‘‘exceptional circumstances’’. That limitation has been removed in the context of Specified Substances and Contaminated Products under Article 10.5.1 of the 2015 Code. Thus, it should now be easier for athletes to trigger the application of “No Significant Fault” in those types of cases than it previously was. See Section 6.2 of Rigozzi et al for a detailed discussion of the point

Footballleaks is now operating since nearly half a year and has already provided an incredible wealth of legal documents both on TPO (and in particular Doyen’s contractual arrangements) and on the operation of the transfer system in football (mainly transfer agreements, player contracts and agents contracts). This constant stream of information is extremely valuable for academic research to get a better grip on the functioning of the transfer market. It is also extremely relevant for the shaping of public debates and political decisions on the regulation of this market. As pointed out on the footballleaks website, it has triggered a series of press investigations in major European news outlets.

In this blog, I want to come to a closure on our reporting on Doyen’s TPO deals. In the past months, we have already dealt with the specific cases of FC Twente and Sporting Lisbon, reviewed Doyen’s TPO deals with Spanish clubs, as well as discussed the compatibility of the TPO ban with EU law. In the Sporting Lisbon case, Doyen has since earned an important legal victory in front of the CAS (the ensuing award was just published by Footballleaks). This victory should not be overstated, however, it was not unexpected due to the liberal understanding of the freedom of contract under Swiss law. As such it does not support the necessity of TPO as an investment practice and does not threaten the legality (especially under EU law) of FIFA’s ban.

In our previous blogs on Doyen’s TPO deals we decided to focus only on specific deals, Twente and Sporting Lisbon, or a specific country (Spain). However, nearly six months after the whole footballleaks project started, we can now provide a more comprehensive analysis of the TPO deals signed by Doyen. Though, it is still possible that other, yet unknown, deals would be revealed, I believe that few of Doyen’s TPO agreements are still hidden. Thanks to footballleaks, we now know how Doyen operates, we have a precise idea of its turnover, its return on investments and the pool of clubs with which it signed a TPO agreement. Moreover, we have a good understanding of the contractual structure used by Doyen in those deals. This blog will offer a brief synthesis and analysis of this data.

I.              Doyen’s “geoeconomics” 

A.    The Iberian base

If you trust the veracity of Doyen’s map of deals,[1] Doyen had signed 31 TPO deals before March 2015, of which many ERPAs are published on the footballleaks website. It started operating in August 2011, with a deal involving Abdellaziz Barrada, which was then a player at Getafe and is now playing at Olympique de Marseille. Until the end of 2013, and the signing of the controversial deal with FC Twente, Doyen was only operating in the Iberian Peninsula (with the exception of an isolated contract involving Felipe Anderson from the Brazilian club Santos in September 2011). The clubs involved were Sporting Gijón, Atlético Madrid, FC Porto, Sporting Lisbon, Getafe, Sevilla FC, Benfica, and Valencia. Those deals concerned a wide range of players, from the highly profitable stars Falcao, Mangala or Rojo to a series of unknown players. Based on the aforementioned ‘map of deals’, Doyen has extracted substantial profit margins from those deals. The maximum of 524% profit being reached on Kondogbia’s transfer from Sevilla to Monaco (Doyen invested €1.5 million and recouped €9.358.653 one year later!).

What drove Spanish and Portuguese clubs into the arms of Doyen? The first openly acknowledged reason for TPO deals is enshrined in many of the ERPAs signed during this first phase of Doyen’s operation: it’s the financial crisis, stupid! Spain and Portugal were directly affected by the crisis. Their financial systems broke down as well as their public finances. At once many Spanish and Portuguese clubs (like most of the local businesses) must have been cut off from their usual credit lines and unable to rely on the traditional patronage of local authorities. In 2012, the outstanding debt of Spanish football clubs with the public authorities was restructured. A recent economic study shows the depth of the financial difficulties faced by a majority of the Spanish clubs in the BBVA League at that time. Barcelona and Madrid are the two lone trees that are hiding a very poor forest. This is a fertile ground for risk-averse investors like Doyen to supplement traditional lenders. As far as the three Portuguese top clubs (Benfica, Sporting Lisbon and FC Porto) are concerned a different dynamic might be at play. Indeed, they have a (quasi) secured spot in the most prestigious European club competition, the UEFA Champions League. There is obviously no better competition to feature the qualities of a player and boost his market value. Their collaboration with Doyen is, thus, less risky than for mid-level Spanish clubs (Getafe, Gijón, Sevilla or Valencia), which were unlikely (or at best uncertain) of ever participating in the Champions League.

In 2014 and 2015, this Iberian bias progressively faded. Doyen entered in new deals only with Granada (Luis Martins), FC Porto (Brahimi) and Cadiz FC (multiplayers). As FIFA announced its decision to ban TPO in September 2014, this might have cooled off the interest of the most prominent Spanish and Portuguese clubs. It is also possible that since the Eurozone crisis came to a slow end and the European central bank flooded the financial markets with cheap money, football clubs progressively recovered access to more traditional (and less risky) sources of credit.

B.    Doyen’s internationalization

This disaffection of its traditional market has probably incentivized Doyen to internationalize its investments beyond its Iberian basis, starting with the infamous multiplayer deal with FC Twente in December 2013. Since August 2013 and a first TPO deal with a Mexican investment company, Twente’s management seems to have been desperately looking for cash to finance its unlimited ambitions. The fire sale of Twente’s key players to Doyen was probably urgently needed to cover the club’s short-term deficits. In practice, some of the players concerned (Tadic and Promes) were sold only six months after the deal. Doyen made a huge profit out of those sales, reaching 300% for Promes’ transfer. In that case Doyen’s intervention was triggered by the financial despair of an overambitious mid-level club, with an insufficiently solid source of stable revenues to support its activity on the transfer market. Doyen was no white knight. It is an investment fund, not a charity! The group was interested in the worthy assets of Twente and bought them at cheap value. This was probably the most destructive intervention of Doyen, as it was not aimed at supporting the recruitment of a specific player but at temporarily propping up the finances of a bankrupt club in return for its only solvable assets.

In 2014 and 2015, Doyen decided also to heavily invest in the South American market. It made a number of deals (11) involving mostly Brazilian players (from Santos FC, Sao Paulo, Atletico Paranense and Flamengo) and also two Columbians (from Deportivo Estudiantil). Those deals are for the most part still on-going. They are also probably riskier for Doyen than the European deals because of the limited guarantees that South American clubs can provide. The Leandro Damiao case is there to remind us that those deals are in any case risky for the clubs. Damiao was a great prospect when he was transferred for €15 million to Santos in December 2013. Based on the map of deals Doyen loaned €12 million to Santos in return for 80% of the economic rights attached to him. Yet, after three years, Damiao’s contract was rescinded in December 2015 and he moved on a free transfer to Betis Seville, leaving Santos with an €18 million debt to pay to Doyen (which was recently upheld by the Brazilian justice). This is a good reminder that TPO, on whichever continent, is everything but risk-free for clubs. The sweet feeling of short-term cash might very well turn into the (very) sour taste of long-term debt.

Finally, in 2015 Doyen entered into a surprising deal with an unknown Belgian club: Seraing United (or RFC Seraing). The relatively small deal (€300.000) concerns three of Seraing’s players. It is definitely an unusual investment for Doyen with very little potential to extract substantial profit. One hypothesis is that this contract is used as a legal Trojan horse to support Doyen’s legal challenge against FIFA’s TPO ban in front of Belgian courts. Indeed, Doyen has hired (for €200.000 in 2015 as indicated in the ‘map of deals’) star lawyer Jean-Louis Dupont, who was Jean-Marc Bosman’s lawyer in the eponym case, to entertain complaints in front of the European Commission and simultaneously the Belgian courts against FIFA’s TPO ban. In that regard, it has successfully used the sanctions imposed by the URBSFA (the Belgium Football Federation) and FIFA against Seraing to justify the jurisdiction of the Belgian courts over the case (see our blog on the latest ruling in this case). Doyen’s TPO investment in Seraing has probably more to do with a smart legal stratagem than a long-term investment.

II.            Doyen’s Contractual System

A.    Doyen’s guarantee: the Put Option or Free Agency Fee

Doyen’s contractual system has been relatively stable since it started operating. The principle is always the same: Doyen provides a lump sum (for various purposes, often the recruitment of the player) and gets a percentage of the economic rights attached to a player in return. However, what it does not do, and that is decisive in making it a rewarding business model, is share with the club the risk that the player fails to become a star or that the player leaves on a free transfer at the end of his contract. For the latter scenarios, Doyen quickly developed a bulletproof contractual system structured around a number of contractual clauses limiting its exposure. Be it named ‘Free Agency Fee’ or ‘Put Option’, the idea is that if a profitable transfer of the player fails, Doyen will secure a minimum return on its investment (often the original grant plus 10% of interests each year). This minimum return on investment is usually secured with a ‘hard’ warrantee, a pledge on a share of fixed revenue. This ‘deed of pledge’ (as it was called in Twente’s case) is often attached to the future revenues derived from the broadcasting rights to which the club is entitled as a member of a professional league or its future ticketing proceeds. It is this secured minimum return on investment that makes it a low risk economic endeavour for Doyen. Basically, Doyen’s only risk is that a club would go bankrupt and disappears, but football clubs are a bit like systemic banks, they are too popular to fail and have the tendency to be rescued by public authorities when they face deep financial trouble.[2]

B.    The ‘Reasonable Transfer Offer’ and Doyen’s influence on the transfer policy of clubs

Doyen’s TPO system also guarantees that in case a player is successful, a club will be forced to transfer him if a ‘Reasonable Transfer Offer’ is made. The ‘Reasonable Transfer Offer’ is defined as a minimum amount. If an offer matches or exceeds this amount, Doyen can force the club into choosing either to sell the player or to buy back Doyen’s share for a price equivalent to Doyen’s share of the transfer proceeds if the player would have been transferred. This is a mechanism that ensures that clubs will not be able to keep an outstanding player and pay the minimum fee due at the end of his contract (or the put option fee), rather than sell the player for a more substantial amount. As the clubs having recourse to Doyen are, as it is argued in its own submissions to the French and Belgian courts, unable to afford recruiting these players in the first place, they are more than unlikely to be able to buy back the share of the economic rights owned by Doyen when their price has tripled or quadrupled. The alternative is simple: sell or go bankrupt. Until now few clubs have chosen the latter option. The mechanism of the ‘Reasonable Transfer Offer’ is in itself aimed at influencing the transfer policy of the clubs signing a TPO deal with Doyen. They have their hands doubly tied: if the player fails to materialize as a star they will have to repay at least Doyen’s investment plus healthy interests; if he does become a star they will lose him as soon as the right transfer offer comes. And Doyen’s TPO contracts ensure that the right transfer offer will come. 

C.     Doyen’s double-game as an agent

In many of the ERPAs published by footballleaks one will find a provision indicating that Doyen has the right to act as an agent to promote the transfer of the player of which it owns a share of the economic right.[3] Doyen, which has intimate knowledge of the key legal conditions enshrined in the ERPA, is in a position to market the players to new clubs and force a transfer by disclosing (informally) the level of the ‘Minimum Transfer Offer’. The potential for conflicts of interests between Doyen acting as an investor and owner of a share of the economic rights attached to a player and Doyen acting as mandated agent to promote the transfer of the same player is obviously high. Nelio Lucas, who was and still is active as an agent, impersonates these ties between Doyen and the shady world of agents. His personal contacts in the milieu are well-known and have been instrumental to the success of his enterprise. Doyen’s unhindered double game as an agent and an investor is one of the reasons why TPO needs at least to be strictly regulated or even banned. When engaging in TPO deals, financially distressed clubs are basically handing over to Doyen the management of parts of their squad. Indirectly the player’s freedom is also impaired. Who can doubt that a club will be able to incentivize his player to leave if it needs him to do so due to Doyen’s financial Sword of Damocles pending over its head.

Conclusion: Thank you footballleaks!

Doyen’s business model is smart and has to be acknowledged as a cynical embrace of the intrinsic logic of FIFA’s transfer system. It plays on each club’s natural drive for grandeur and the propensity of the clubs’ management to throw caution to the wind to get there at least once. Doyen’s head, Nelio Lucas, is no criminal. There is no indication that he engages in match fixing or money laundering. He is a dead-set investor hunting for the grail: secure financial returns on investments. And he (with many others[4]) has found a way to play the transfer system to his advantage and to game irrational clubs and managers. This does not imply that this business model should go on, however.

Instead, it must be acknowledged that this extreme form of ‘financiarisation’ of football brings with it important risks for clubs. Not only football fans are sometimes (often) irrational, more dramatically the management of clubs are often acting irrationally when they take on huge financial risks to achieve short term sporting success. It must also be acknowledged that public authorities have the tendency, for right or for wrong, to bail out football clubs when they face financial troubles. Thus, in turn, raising the potential of moral hazard and free riding from the part of reckless investors. Finally, it is clear that the transfer market due to its intrinsic transnational structure and the role played by inter-subjective networks is prone to conflicts of interests, which are heightened when the ownership of the economic rights attached to a player are distributed in an opaque fashion amongst a set of different actors.[5] The problem must be understood as structural. New legal mechanisms must be devised to avoid that the transfer system is abused for the purpose of speculation and to ensure that clubs are not incentivized to have recourse to creative financing to achieve competitive balance. 

All this calls for strong regulatory intervention. But, can FIFA truly regulate a complex set of transactions that span a variety of jurisdictions? Personally, I doubt it.[6] It needs to simplify the market to better control it. The TPO ban is a form of simplification. Another option would be to use FIFPro’s current complaint against the FIFA transfer system in front of the EU Commission to reinvent the transfer system and put a negotiated end to the artificial commodification of football players’ contracts.

In any event, we would not have been able to discuss all of this without footballleaks. In a complex world where markets ignore borders and economic actors operate from opaque jurisdictions, exceptional actions are needed to supervise those transactions and ensure that the visible hand of the general interest supports the (sometimes truly) invisible hand of the market.

[1] This document is susceptible to being easily forged, as it is a simple excel sheet. Therefore, I crosschecked the data included on the excel sheet with Doyen’s ERPAs published on Footballleaks, which confirmed the likely veracity of the information provided in the map of deals.

[2] This is where the EU State aid rules might also come into play to protect the public purse. See R. Craven, ‘Football and State aid: too important to fail?’, International Sports Law Journal (2014) 14:205–217 and B. Van Rompuy & O. van Maren, ‘EU Control of State Aid to Professional Sport: Why Now?’, Forthcoming in: A. Duval & B. Van Rompuy (eds.) The Legacy of Bosman. Revisiting the relationship between EU law and sport (T.M.C. Asser Press, 2016).

[3] See for example: ERPA Guilavogui, para.7 ; ERPA Ola John, para.10.6 ; ERPA Luis Martins, para 14.2 ; or ERPA Kondogbia, para.7.

[4] Numerous investment firms and agents/intermediaries relied on a similar business model. Footballleaks has released fewer documents as far as they are concerned, but see for examples: Gestifute; Gol Football Luxembourg S.A.R.L; Representaciones Internacionales Vijai SA; Quality Football Ireland Limited; Leiston Holding limited.

[5] The “opacity” of the transfer system was recently flagged by an excellent Harvard study: M. Andrews and P. Harrington, ‘Off Pitch: Football’s financial integrity weaknesses, and how to strengthen them’, CID Working Paper No. 311 January 2016.

[6] Andrews and Harrington (at p.99) believed before footballleaks’ releases “that the lack of knowledge about TPO affords it room to hide and that a general ban will force more ‘hiding’, which will limit opportunities to gather information about the practice and effectively regulate it in future.” Yet, I think FIFA would had a very hard time to create the transparent register they dream of, compliance with a duty to disclose would be extremely difficult to police and the case-by-case assessment of an incredible number of contractual arrangements would be needed. With the full ban FIFA reduces the administrative burden and partially externalizes enforcement to whistle-blowers (as footballleaks) and the press.