Editor’s Note: Saverio Spera is an Italian lawyer and LL.M. graduate in International Business Law at King’s College London. He is currently an intern at the ASSER International Sports Law Centre.

In the football world the use of unilateral extension options (hereafter UEOs) in favour of the clubs is common practice. Clubs in Europe and, especially, South America make extensive use of this type of contractual clauses, since it gives them the exclusive possibility to prolong the employment relationship with players whose contracts are about to come to an end. This option gives to a club the right to extend the duration of a player’s contract for a certain agreed period after its initial expiry, provided that some previously negotiated conditions are met. In particular, these clauses allow clubs to sign young promising players for short-term contracts, in order to ascertain their potential, and then extend the length of their contracts.^[1] Here lies the great value of UEOs for clubs: they can let the player go if he is not performing as expected, or unilaterally retain him if he is deemed valuable. Although an indisputably beneficial contractual tool for any football club, these clauses are especially useful to clubs specialized in the development of young players.^[2] After the Bosman case, clubs have increasingly used these clauses in order to prevent players from leaving their clubs for free at the end of their contracts.^[3] The FIFA Regulations do not contain any provisions regulating this practice, consequently the duty of clarifying the scope and validity of the options lied with the national courts, the FIFA Dispute Resolution Chamber (DRC) and the CAS. This two-part blog will attempt to provide the first general overview on the issue.^[4] My first blog will be dedicated to the validity of UEOs clauses in light of national laws and of the jurisprudence of numerous European jurisdictions. In a second blog, I will review the jurisprudence of the DRC and the CAS on this matter.

Even though the DRC’s and the CAS’s view on UEOs matter most prominently in daily practice, it is impossible to entirely ignore the positioning of national laws and EU law vis-à-vis the legality of UEOs. In fact, as we will see later, arguments derived from national law also play a fundamental role in the assessment of the UEOs by the CAS. A comparative analysis of the UEOs validity under national laws is extremely difficult to conduct, as these clauses are relatively rare outside of football and the few rulings of lower level national courts are difficult to access. In an ordinary employment contract, deprived of the specificities of the sporting context, it is hard to fathom the utility for the employer to have the power to extend the contract unilaterally at his or her will. Due to the operation of the transfer market, football players are in a peculiar employment condition, hardly comparable to that of any other employee. The investments clubs make on training footballers and their transfer value contribute to this unique employment relationship to the extent that footballers are considered intangible assets for the clubs.^[5] Given the difficulty of comparing hardly comparable situations, the only way to proceed to a comparative overview is to attempt to produce comparative snapshots, which, due to the limited amount of space, are necessarily incomplete.

In Switzerland: It’s unenforceable

It is ironical that in a liberal country like Switzerland, where contractual freedom is interpreted widely, the validity of UEOs under national law is doubtful. Although there are no provisions concerning UEOs in Swiss labour law, we can conclude that under Swiss law these clauses are most likely unenforceable.^[6] In Switzerland such an option would be deemed to infringe employment law and thus considered invalid when incorporated in employment contracts. According to Art. 335a para. 1 of the Swiss code of Obligations^[7] there must be formal parity between employer and employee concerning terminations of contracts. UEOs clauses would circumvent this provision by creating disparity between the parties, as they confer to one party the unilateral possibility to prolong the contract. The Swiss Civil Court, although in disputes arising outside the realm of football, has in the past denounced the circumvention of the provisions. It imposed the equality of treatment between employer and employee concerning the conditions of termination of an employment contract. In one case regarding a two year contract for services abroad, which included the possibility of tacit renewal and the right for the company to recall the employee in Switzerland, the Court stated that the right to recall the employee granted unilaterally to the employer gave him a more favourable position than the employee with regard to the termination of the fixed-term contract. This situation, stressed the Court, is contrary to the purpose of then Art. 336 para. 2 CO, which aims to grant equivalent protection to the parties.^[8] A next case involved a trilateral service contract between an employee, an employer (Meco Mechanical Corporation) and a beneficiary (the government of the then United Arab Republic, a short-lived political union between Egypt and Syria). The contract included a right to early termination granted to the beneficiary. The Court, nonetheless, stated that this right is contrary to “Article 347 (3) of the Swiss Code of Obligations, which prohibits the agreement between different periods of notice for the employer and the service provider. This prohibition cannot be circumvented by making the right of termination or the automatic termination of the employment relationship conditional upon a condition which is unilaterally dependent on the will of the employer. Such a condition would allow the employer to terminate the contract at a point in time at which the service provider could not.”^[9]

It should be noted that the principle of parity between the parties is not considered part of the Swiss ordre public. Consequently, if a case has to be decided on Swiss territory according to a foreign law that allows for the use of unilateral extension options, Swiss law cannot prevent the application of such clauses. However, if the clause leads to over extensive commitment on the side of the employee, it might be considered an infringement of the ordre public and, thus, be deemed null and void. 

In Germany: It’s complicated

According to a first ruling of the Labour Court of Ulm, some UEOs are considered null and void. It concerned a one-year agreement (valid from 1 January 2007 to the end of season 2007/2008) between the club and the player, which contained an UEO giving the club the right to extend the contract for one more year. ^[10] The Court held the option invalid. More precisely, the Court considered the unilateral option ineffective. Based on Art. 307 para. 1 BGB, provisions in general terms and conditions should be considered invalid if they unduly penalize the contractual partner and are not accompanied with appropriate compensatory measures. In the present case, the Court found that the unilateral option clause served only the purpose of providing the employer with an additional income in the form of a transfer indemnity. In these conditions, the UEO amounts to a disproportionate restriction of the freedom to work enshrined in Art. 12 of the Grundgesetz (German constitution).^[11]

Nonetheless, a few years after the decision of the Labour Court of Ulm, the German Federal Labour Court held (implicitly) another UEO clause for valid.^[12] The Court dealt with the option only incidentally, as the case mainly revolved around the validity of the resolution agreement signed by the parties. The player, 15 years old at the time, and the club had originally concluded a contract for a period of four years (from 1 July 2006 to 30 June 2010) with the option granted to the club to unilaterally extend the relationship for another year (until 30 June 2011). Sometime after having joined the club, the player started suffering psychological pressure due to a series of personal circumstances and expressed the desire to terminate the contract prior to its natural expiry. The parties then signed a resolution agreement, pursuant to which the club agreed to a resolution in return of a payment of € 40,000. The decision was focused on the validity of that agreement, it only briefly scrutinised the extension option and considered it compatible with the framework of § 15 Abs. 4 TzBfG (or of § 624 BGB for free employment), due to the fact that the length of the contract respected the maximum binding time of five years.^[13] The Court emphasised, in fact, that this is the threshold a fixed-term employment contract has to observe in order to avoid curtailing excessively the employee’s personal freedom and added that the standard is consistent with the principle of freedom of work and of choice of work enshrined in Art. 12(1) of the Basic Law.^[14]

In the Netherlands: It’s probably ok

It takes a bit of legal extrapolation to conclude that any jurisdiction plainly authorizes UEOs, given that none of those examined for the purpose of this blog has a labour legislation in place which expressly supports the validity of UEOs. However, in the Netherlands, where the national labour legislation does not contain any provisions on UEOs, the only known (private) decision to date recognized the validity of such clauses under Dutch law. In the dispute between the Tunisian football player Hatem Trabelsi and his club Ajax Amsterdam the unilateral option included in the contract was deemed to be valid and binding.^[15] The ruling found the option compatible with the dismissal system provided by labour law in combination with contract law.^[16]

In Belgium, Spain, Austria and Italy: It depends on the collective bargaining agreement

A very common framework among jurisdictions seems to reflect the specificity of sport in that it makes footballers’ employment contracts sort of double-layered agreements regulated by employment legislation on the one side and by Collective Bargaining Agreements (CBAs) on the other. In this context, the various legislations delegate to CBAs the duty to outline the details of footballers’ employment conditions, among which one often finds the requirements for UEOs to be validly included therein.

In Belgium, player contracts are mainly regulated by provisions of employment law, in particular by the Act of 3 July 1978 on employment contracts (the Employment Contracts Act).^[17] Yet, with regard to option clauses, the Football Collective Agreement of 15 February 2016 states that, although in general these options are not valid, they are not considered to be unilateral under certain conditions. According to Art. 15 of said agreement, if the clause (i) is agreed upon in writing at the outset, (ii) provides a total duration, extension included, of the relationship of maximum 5 years, and 3 years for under 18 players and (iii) provides for a certain increase in salary (at least 15% of the fixed remuneration and 5% of the match- or selection premium, or 20% of the fixed remuneration, whereby the increase does not need to exceed the amount of 20.000 Euro), it might be considered valid and binding as not unilateral.

In Italy, the employment aspects of sports are regulated by the Law 91/1981. This special legislation, according to which some of the dispositions applicable to subordinate employment do not apply in the sporting context,^[18] was enacted to reflect the peculiarities of the employment relationship in sport.^[19] This legislation does not include any express provision covering UEOs, but – while generally stating at art. 5 that the duration of the fixed-term contract cannot exceed five years - it relies on the CBA for specific contractual requirements. Art. 2 para. 2 of the CBA states that “option agreements are permitted both in favour of the Club and the Player, on the dual condition that a specific consideration is provided in favour of the party who grants the option and that the limit of the overall duration of the Contract, such overall duration consisting of the sum of the duration provided plus any extension represented by the option […], does not exceed the maximum duration provided by law”. The “specific consideration” of the English version is translated from “corrispettivo specifico” which means that, aside from the five-year ceiling, the condition for the UEO to be valid is an increase in the salary of the player.

In Austria these clauses are not invalid as such, but they have to meet the requirements laid down in Section 6(4) of the Collective Agreement for football players of the Austrian Football League (KV-ӦFB), as amended on 1 July 2014. It reads as follows: “The granting of an option to be exercised by a unilateral declaration is only permissible if each party of the contract is granted equal rights and the exercise of the option is linked to equivalent conditions for both parties […]. The date of conclusion of the contract shall be decisive for the assessment of equivalence”.^[20] The Austrian Supreme Court recently upheld the decision of the lower courts in a dispute regarding the validity of an extension option contained in a football player’s contract.^[21] The one-year agreement, valid from 1 July 2014 to 30 June 2015, contained an option that granted the club the possibility to extend the contractual relationship for two more years, until June 2017, as long as the club exercised it by 31 May 2015.  On October 2015 the player remitted his salary payments to the club and referred the case to the Tribunal to question the validity of the option. Both the Court of first instance and the Court of Appeals considered the agreement ineffective as the clause did not meet the requirements of Section 6 (4) KV-ӦFB. The ground on which the two courts reached this conclusion was the lack of equivalency of rights under the agreement, as (i) the increase in salary (of 15%) was not proportionate to the length of the extension; (ii) at the time of signing the contract, the contractual conditions for an extension were not defined.[22] The Supreme Court held that the assessment of the lower courts could not be disputed and reiterated that Section 6 (4) KV-ӦFB is unequivocally clear in requiring the granting of equivalent rights to both parties of the contract for an UEO to be acceptable. Equivalence, the Court continued, that has to be assessed at the date of conclusion of the contract.

In Spain the main source of law regarding the employment relationships of professional athletes is the Royal Decree 1006/1985. Regarding the duration of the contract, art. 6 of RD 1006/85 provides that (i) sportsmen contracts are always fixed-term contracts, (ii) the extensions of these contracts, which shall always be definite as well, can be achieved through subsequent agreements between the parties when the contract is about to expire. Paragraph 3 of this provision admits different possibilities of extension in so far as the Collective Bargaining Agreement provides so.^[23]  On the matter, the current Collective Bargaining Agreement defer in turn to the RD 1006/85, as Art. 14 provides that “by mutual agreement between the Club and the Footballer, the contract may be extended, in the terms established in the second paragraph of article 6 of Royal Decree 1006/1985, of June 26”. At the moment, therefore, it seems that extension options in Spain need to be agreed with the player.

In the UK: Likely not

Sometimes circumstances other than the CBA can play a role. The United Kingdom and the Premier League, for instance, represent a unicuum in the panorama of the jurisdictions under scrutiny in the sense that, although here – as in other countries – the employment relationship is governed by national law, collective agreements and the rules of the Football Association (FA),^[24] two specificities place this system in a peculiar position. First of all, in the United Kingdom collective agreements are not legally enforceable. It is true that the terms of a collective agreement may be binding and enforceable between the parties of an employment relationship if these have been incorporated into the individual contract.^[25] However, a court may nonetheless conclude that the term is not enforceable. Secondly, no single overarching collective agreement encompasses the employment relationship between clubs and players in the Premier League. There are, instead, a series of collectively negotiated agreements, such as the Standard Players’ Contract.^[26] In an early decision that challenged the English ‘Retain and Transfer System’ as an unlawful restraint of trade, the High Court placed emphasis on the inequality of bargaining power in a professional football player’s relationship with a club, stating that “in the football industry players commonly enter into their first contract either while they are under 21 or shortly afterwards, and that wherever they may subsequently go, within the Football League, there is only one form of contract they can sign. The Court must be careful to see that contracts made in these circumstances are justifiable in the interests of both parties”.^[27]

That said, although there is no CBA in place that can enlighten us about the validity of UEOs, a satisfying answer could nonetheless be found in the Courts’ rulings concerning contracts in the (to some extent) comparable context of the music industry. The profession of the musician resembles in various aspects that of the football player. As for footballers, musicians’ contracts are linked to their performance, in terms of copies of albums sold, concert tickets sold, royalties from the ads etc. The more a musician is perceived to be promising, the more lucrative the contract he can get from the record company will be. Just as sports professionals, musicians often begin their career in their prime age. In order to get a foot in their respective highly rewarding industries, sportsmen and musicians might agree to contractual clauses without fully understanding the consequences or, more likely, even if they do fully understand the implications of such contracts they may feel they have no option but to sign them if they want their career to start or progress.^[28] This similarity allows us to draw some useful comparisons from the case law of UK courts regarding musicians.

For instance the House of Lords declared void an agreement between a young and unknown musician by the name of Tony Macaulay and the publishing company Schroeder Music Publishing Co Ltd, which contained a clause extending to 10 years the original five-year undertaking of the company.^[29] When he signed the contract, the musician was aged 21. The agreement provided that the duration of five years would have been extended to 10 in case the royalties for the first five years exceeded £ 5,000. In the words of Lord Reid “if the respondent’s work became well known and popular he would be tied by the agreement for ten years”.^[30] In consideration of the duration of the contract and the fact that the payment received by the author was minimal unless his work was released, which was not an obligation for Schroeder Music according to the contract, Lord Reid was of the opinion that the publishers’ appeal had to be dismissed. His reasoning was grounded on the consideration that “if contractual relations appear to be unnecessary or to be reasonably capable of enforcement in an oppressive manner, then they must be justified before they can be enforced”.^[31] Lord Diplock deemed the contract unenforceable due to its substantial unfairness and emphasised the need to accord protection to “those whose bargaining power is weak against being forced by those whose bargaining power is stronger to enter into bargains that are unconscionable”.^[32] For the same reason, the English Court of Appeal struck down as void a publishing agreement between the already established band Fleetwood Mac and the publisher which tied the band to the company for a five year period plus the possibility to extend the relationship for another five years.^[33] The court held that the publishing agreement gave the company “a stranglehold over each of the composers”^[34] and found the contract fundamentally unfair to the group.

These two decisions give us an insight on how under English law, where – it is important to bear in mind – as a general rule the letter of the contract prevails, clauses of these kind tying professional musicians have been considered null and void because of the disproportionate contractual power between the parties. A conclusion that was confirmed even when the band concerned was not unknown. It is easy to see how such reasoning could be applied to UEOs in professional football.

Under EU law: It should be fine

The last unknown is the position of EU law with regard to UEOs. In many ways, UEOs are contractual mechanisms used to attenuate the consequences of the Bosman ruling.  Indeed, they give the club the opportunity to prolong an employment contract without the consent of a player, and therefore to obtain compensation in case the player wishes to move to another club. However, the striking difference with a Bosman situation is that this contractual set-up is not mandated by the private regulations of the football federations or leagues. Instead, it is negotiated ab initio between the contractual parties, and hardly ever imposed by a collective agreement. Thus, as long as the original free will of the player is not constrained by private rules, which in fact might be the case in a closed labour market where the clubs can act as an oligopoly and (implicitly) coordinate their behaviour, one could argue that the free movement of a player is restricted only by his or her own free will.  In its more recent Bernard ruling, the CJEU came close to dealing with an UEO, but here again the forced prolongation of the contract was imposed by the French collective bargaining agreement in force at the time of the dispute and not negotiated on an individual basis between the parties. Therefore, it is relatively unlikely that EU law could be successfully invoked to challenge the validity of UEOs, unless those are at least identified as a collective practice or informal rule applied by clubs against the will of players.

Conclusion: A European legal mess

Notwithstanding the hardly avoidable incompleteness of the above comparative sketch, a short conclusion on the validity of UEOs in light of national and European law is in order. First of all, it is clear that no single answer prevails Europe-wide. The brief analysis carried out shows that each of the jurisdictions scrutinised approaches the topic differently. The only uniformly shared regulatory trait is that national legislators have not regulated the matter. Instead, we had to look for potential answers in the jurisprudence of local courts, more often than not extrapolating from cases outside of the realm of football. Furthermore, legislators commonly delegate to CBAs the duty to define the employment conditions of professional football players. In short, the legality of UEOs is usually dependent on the interpretations of local courts or the decisions of local social partners. However, where UEOs are deemed valid, it is always under stringent conditions such as a strict limit to the overall duration of the extended contract and the provision of a substantial increase in salary. Hence, the validity of UEOs hinges on the rather subjective evaluation of the overall fairness of a specific UEO in the context of a specific contract. Whether this is also true of the jurisprudence of the DRC and the CAS when confronted to UEOs will be the subject of our next blog.

[1] The reference is obviously to young players older than 18, as in respect of contracts of minors art. 18 FIFA RSTP is crystal clear in prohibiting the signing of contracts longer than three years.

[2] D. F.R. Comparie, G. Planás R.A. and S-E. Wildermann, Contractual Stability in Professional Football: Recommendations for Clubs in a Context of International Mobility, 2009, p.27. The authors point out that, although transfer fees constitute an important part of every clubs’ financial income, some clubs, particularly those with smaller broadcasting revenues, rely on them to a great extent. Usually, clubs which cover their costs mainly through transfer fees tend to build a good youth development, because being able to sell the players when they are valued the most is financially crucial for them.

[3] F. de Weger, The Jurisprudence of the FIFA Dispute Resolution Chamber, Asser Press, 2016, p. 164.

[4] The few existing contributions on this question are F. De Weger, The Jurisprudence of the FIFA Dispute Resolution Chamber, Asser Press, 2016, pp 163- 191 and W. Portmann, Unilateral option clauses in footballers’ contracts of employment: an assessment from the perspective of international sports arbitration,Sweet Maxwell Int Sports Law Rev, 2007,  7(1):6-16.

[5] See UEFA Club Licensing and Financial Fair Play Regulations (2015 Edition), which, at ANNEX VI (B)(ix), includes players as intangible assets among the assets that need to be disclosed for balance sheet requirements and, at ANNEX VII (C)(1), sets out the minimum accounting requirement “for player registrations carried out as intangible fixed assets as set out in Articles 47, 48 and 52”.

[6] For a similar view, see Jan Kleiner, Der Spielervertrag im Berufsfussball, Schulthess, 2013, at pp. 891-900.

[7] Art. 335a para 1 Swiss Code of Obligations reads as follows: “Notice periods must be the same for both parties; where an agreement provides for different notice periods, the longer period is applicable to both parties”.

[8] BGE 108 II 115.

[9] BGE 96 II 52. The original German version reads as follows: “Eine solche Schranke bildet insbesondere Art. 347 Abs. 3 OR, der die Vereinbarung verschiedener Kündigungsfristen für den Dienstherrn und den Dienstpflichtigen verbietet. Dieses Verbot kann nicht dadurch umgangen werden, dass das Kündigungsrecht oder die automatische Beendigung des Dienstverhältnisses von einer Bedingung abhängig gemacht wird, deren Eintritt einseitig vom Willen des Dienstherrn abhinge. Eine solche Bedingung würde es dem Dienstherrn erlauben, den Vertrag schon auf einen Zeitpunkt zu beenden, auf den der Dienstpflichtige das nicht tun könnte. Ein bedingtes Kündigungsrecht und eine bedingte automatische Beendigung des Dienstverhältnisses dürfen nur vereinbart werden, wenn und soweit der Eintritt der Bedingung vom Willen der Parteien nicht abhängt oder beide Parteien ihn in gleicher Weise herbeiführen können“.

[10] ArbG Ulm, judgment of 14 November 2008 – 3 Ca 244/08.

[11] Ibid., para. 37. The original German version reads as follows: “Nach § 307 Abs. 1 Satz 1 BGB ist eine formularmäßige Vertragsbestimmung unangemessen, wenn der Verwender durch einseitige Vertragsgestaltung missbräuchlich eigene Interessen auf Kosten seines Vertragspartners durchzusetzen versucht, ohne von vornherein auch dessen Belange hinreichend zu berücksichtigen und ihm einen angemessenen Ausgleich zu gewähren. Die Feststellung einer unangemessenen Benachteiligung setzt eine wechselseitige Berücksichtigung und Bewertung rechtlich anzuerkennender Interessen der Vertragspartner voraus. Bei diesem Vorgang sind auch grundrechtlich gestützte Rechtspositionen zu beachten. Zur Beurteilung der Unangemessenheit ist ein genereller, typisierender, vom Einzelfall losgelöster Maßstab anzulegen. Im Rahmen der Inhaltskontrolle sind dabei Art und Gegenstand, Zweck und besondere Eigenarten des jeweiligen Geschäfts zu berücksichtigen. Zu prüfen ist, ob der Klauselinhalt bei den typischen Interessen der beteiligten Verkehrskreise eine unangemessene Benachteiligung des Vertragspartners ergibt (vgl. BAG Urteil vom 18.03.2008 9 AZR 186/07 Rn. 19, NZA 2008, 1004 ff.). § 6 a Spielervertrag gibt nur dem Arbeitgeber das Recht, den Vertrag um ein Jahr zu verlängern. Will der Spieler den Arbeitgeber nach Ablauf der Laufzeit des Vertrages wechseln und übt der Arbeitgeber sein einseitiges Optionsrecht für die Vertragsverlängerung rechtzeitig aus, führt das dazu, dass ein aufnahmebereiter Arbeitgeber eine Freigabe des Spielers durch den bisherigen Arbeitgeber nur gegen Zahlung einer Transferentschädigung erhalten wird. Durch die Transferentschädigung reduziert sich die Aufnahmebereitschaft von neuen Arbeitgebern und die Verdienstmöglichkeit des Arbeitnehmers bei neuen Arbeitgebern. Der Kläger verursacht dem neuen Arbeitgeber bei einem ablösefreien Wechsel weniger Kosten. Der budgetierte neue Arbeitgeber kann dem Kläger in diesem Fall eine höhere Vergütung zahlen. Die einseitige Optionsklausel dient nur dazu, dem abgebenden Arbeitgeber eine zusätzliche Einnahme in Form einer Transferentschädigung zu verschaffen. Sie behindert damit erkennbar die Berufsfreiheit des Arbeitnehmers nach Artikel 12 Abs. 1 Satz 1 Grundgesetz, wonach alle Deutschen u. a. das Recht haben, die Arbeitsstätte frei zu wählen. Das Interesse des Beklagten an einer Einnahmequelle aus einem Spielertransfer hat hinter dem grundgesetzlich geschützten Interesse des Klägers an der Berufsfreiheit zurückzutreten”.

[12] BAG, judgment of 25 April 2013, 8 AZR 453/12.

[13] Ibid., para 32.

[14] Ibid.

[15] Dutch KNVB Arbitration Tribunal, 4 June 2004 n. 1022.

[16] M. Colucci and F. Hendricks, Regulating Employment Relationships in Professional Football. A Comparative Analysis, European Sports Law and Policy Bulletin 1/2014, p. 254.

[17] Ibid., 39.

[18] To sports contracts do not apply Art. 4, 5, 13, 18, 33, 34 L. 300/1970, regulating, among others, medical assessments and dismissals and Art. 1, 2, 3, 5, 6, 7, 8 L. 604/1966. To fixed term contracts, the provisions of L. 230/1962 do not apply.

[19] Colucci, Hendricks, Regulating Employment Relationships in Professional Football. A Comparative Analysis, European Sports Law and Policy Bulletin 1/2014, 201 – 202.

[20] The original German version reads as follows: “Die Einräumung von durch einseitige Erklärung auszuübenden Gestaltungsrechten (Optionsrechten) ist nur zulässig, wenn sie jedem Vertragsteil gleichwertige Ansprüche einräumt und auch die Art der Ausübung des Optionsrechtes für beide Teile an gleichwertige Bedingungen geknüpft ist (z.B. einseitige Vertragsverlängerungsmöglichkeit durch den Klub bei bereits vorab festgesetzter Gehaltserhöhung für den Spieler oder sonstiger gleichwertiger Verbesserungen für den Spieler, wobei stets die besonderen Umstände des Einzelfalles [Alter des Spielers, Dauer der Vertragsverlängerung] zu berücksichtigen sind). Für die Bewertung der Gleichwertigkeit ist der Zeitpunkt des Vertragsabschlusses maßgeblich”.

[21] OGH 28.10.2016, 9 ObA 88/16f

[22] Ibid., The original German reads as follows: “Das Erstgericht gab dem Klagebegehren statt. Es kam zu dem Ergebnis, dass die Optionsvereinbarung unwirksam sei, weil sie nicht den Voraussetzungen des § 6 KV-ÖFB entspreche. Den Vertragsteilen würden durch diese Vereinbarung keine gleichwertigen Ansprüche eingeräumt. Der „Sideletter“ zum Spielervertrag, der ein höheres Gehalt für die Verlängerungszeit regelte, sei nicht statutengemäß unterfertigt worden und daher nicht wirksam geworden; darüber hinaus sei diese Gehaltserhöhung im Verhältnis zur Dauer der Verlängerung auch nicht angemessen. Das Berufungsgericht gab der Berufung des Beklagten dagegen keine Folge. Auf die Frage des rechtswirksamen Zustandekommens der im „Sideletter“ vorgesehenen Vereinbarung komme es hier nicht an, weil § 6 Abs 4 des KV-ÖFB die Gleichwertigkeit der Ansprüche beider Vertragsteile bereits zum Zeitpunkt des Vertragsabschlusses fordere und die dem Beklagten im Spielervertrag eingeräumte Option daher dem Kollektivvertrag widerspreche. Bei Abschluss des Vertrags sei nicht festgesetzt worden, mit welchen Verbesserungen der Kläger im Fall der Verlängerung rechnen könne; eine Lösungsbefugnis des Klägers sei auch nicht vorgesehen. Außerdem sei die Option wegen ihrer Dauer (Verlängerung doppelt so lang wie das befristete, eigentliche Vertragsverhältnis) nicht als gleichwertig anzusehen. Wenngleich das Interesse eines Fußballvereins an einer einseitigen Verlängerungsmöglichkeit insbesondere im Nachwuchsbereich plausibel sei, dürfe sich der Verein nicht vom Risiko der sportlichen Entwicklung des Spielers zu dessen Lasten (weitgehend) befreien. Hier sei die Option wegen der doppelten Länge der ursprünglichen Vertragsdauer schließlich auch im Fall einer Erhöhung des Entgelts um nur 15 % (wie im „Sideletter“ vorgesehen) nicht als ausreichend gleichwertig anzusehen“.

[23] Art. 6 RD 1006/1985 reads as follows: “La relación laboral especial de los deportistas profesionales será siempre de duración determinada, […].Podrán producirse prórrogas del contrato, igualmente para una duración determinada, mediante sucesivos acuerdos al vencimiento del término originalmente pactado. Solamente si un convenio colectivo así lo estableciere podrá acordarse en los contratos individuales un sistema de prórrogas diferente del anterior, que en todo caso se ajustará a las condiciones establecidas en el convenio”.

[24] L. O’Leary, Employment and Labour Relations Law in the Premier League, NBA and International Rugby Union, T.MC. Asser Press, 2017, p.204.

[25] Ibid., p.99.

[26] ibid., p.208.

[27] Eastham v Newcastle United Football Club [1964] Ch 413, p. 428, cited in in Leanne O’Leary, Employment and Labour Relations Law in the Premier League, NBA and International Rugby Union (2017), 5.

[28] S Gardiner, M James, J O’Leary and R Welch with I Blackshaw, S Boyes and A Caiger, Sports Law – Third Edition (2006), 494.

[29] [1974] 3 All ER 616

[30] Ibid.

[31] Ibid.

[32] Ibid.

[33] [1975] 1 All ER 237.

[34] Ibid., 238.

Introduction: FIFA’s TPO ban and its compatibility with EU competition law.
Day 1: FIFA must regulate TPO, not ban it.
Day 3: The Impact of the TPO Ban on South American Football.
Day 4: Third Party Investment from a UK Perspective.
Day 5: Why FIFA's TPO ban is justified.

Editor’s note: Raffaele Poli is a human geographer. Since 2002, he has studied the labour and transfer markets of football players. Within the context of his PhD thesis on the transfer networks of African footballers, he set up the CIES Football Observatory based at the International Centre for Sports Studies (CIES) located in Neuchâtel, Switzerland. Since 2005, this research group develops original research in the area of football from a multidisciplinary perspective combining quantitative and qualitative methods. Raffaele was also involved in a recent study on TPO providing FIFA with more background information on its functioning and regulation (the executive summary is available here).

This is the third blog of our Symposium on FIFA’s TPO ban, it is meant to provide an interdisciplinary view on the question. Therefore, it will venture beyond the purely legal aspects of the ban to introduce its social, political and economical context and the related challenges it faces.

1)    Introduction

This paper reviews the main challenges to the smooth development of football when considering the repercussions of third party entitlement to shares of transfer fees (sections 2 to 5) and formulates a non-partisan proposal to reform the transfer system as a whole (section 6).

Third parties define all other parties than the teams transferring the registration of a player: companies, holdings, investments funds, agents, club shareholders and employees, footballers and relatives, other football clubs, football academies, etc.

In the interests of accuracy and avoidance of doubt, the common terms of third-party ownership and players’ economic rights are not used in this paper. Literally speaking, the business area considered is indeed based on options rather than ownership.

Moreover, the term of ownership suggests that third-party investors “own” players as for a master with respect to a slave. TPE arrangements also raise crucial issues in terms of power between third-party investors and players. However, the stakes are hardly comparable with those in the master/slave relationship. It is thus more accurate to refer to entitlement instead of ownership.

With regard to economic rights, they are nothing more than transfer compensation as stipulated by FIFA regulations. The notion of economic rights is thus also misleading as it suggests the existence of specific rights beyond those deriving from regulations set up by football authorities. The unreflective use of this concept only adds confusion to the debate.

The common goal of actors participating in the business of third-party entitlement (hereafter TPE) is to make a financial profit through the transfer of players, or, for individuals involved in the financing of clubs, to be able to secure their investments.

2)    TPE and the sustainability of football clubs

The growth of TPE deals raises crucial issues for the sustainable development of clubs. This is especially true for teams that view regular investment from third parties as a key income source in their business model.

While TPE investments might initially be welcomed by clubs facing economic problems, over time, such agreements have the potential to provoke a loss of control over transfer operations and durably compromise the financial situation of teams.

Within the context of economic polarisation[1], TPE deals do not have the power to solve financial issues arising from an unfavourable position in the market. On the contrary, a difficult situation from an economic standpoint reduces considerably the bargaining power of clubs with respect to third parties.

Third-party investors promoting TPE arrangements are thus often able to acquire a favourable position within a club to minimise their risks and maximise profits over the longer term. This reinforces the dependency of clubs vis-à-vis third parties and affects their financial stability.

The TPE business model develops in parallel with the progressive takeover of clubs by groups or individuals motivated by the possibility to speculate on the transfer market. The tendency to consider teams as a launching-pad to generate profits through the transfer of players increases.

Club employees in charge of transfers also contribute to this process by using their strategic position for personal profit. Within this framework, economic stakes tend to overcome sporting objectives. This runs in the vast majority of cases contrary to the long-standing interests of clubs.

Indeed, the greed of third-party investors, the high mobility of players and the chronic financial instability of clubs engaging in TPE practices tend to have a negative impact on results. Several studies by the CIES Football Observatory have provided evidence that over-activity in the transfer market is counterproductive in the long run.[2]

In turn, poor performance levels have a negative effect on the ability to generate revenues in the transfer market and can lead to bankruptcies. It is indeed harder to find potential buyers interested in taking over a club when the latter is not entitled to potential transfer fees for players under contract.

3)    TPE and the development of the game

The logic of short-term profit maximisation underlying TPE practices is often not appropriate for the sporting development of players. This is above all valid for young talents transferred abroad before the acquisition of a solid experience in their home country.

The numerous transfers that many footballers at the heart of the TPE business model will be confronted with to develop or restart their career only add to the pressure which makes fulfilling their potential more difficult. In many cases, this aspect is not sufficiently taken into account by third-party investors primarily attracted by the lure of money.

The monetisation of players’ mobility within the framework of the TPE business model tends thus to have a negative effect not only for footballers, but also on football in general. Short-termism and speculation often run contrary to the personal development of players and entail greater risks of breaking careers.

Furthermore, there are serious concerns with regard to influence and bias in player selection. Indeed, the speculative nature of the TPE business model and vested interests between the various actors involved promotes favouritism.

High risks of favouritisms and insider trading also exist with regard to national team selection both at adult and youth level. Indeed, international caps can significantly increase the market value of a player and guarantee higher profits.

In addition, as the ability to produce high-quality matches is strongly linked to team cohesion, the increase in player turnover within the framework of the development of TPE arrangements is damaging to football as a spectacle.

While some well-connected clubs are able to take advantage of their privileged access to the best talent by means of TPE deals, this always takes place to the detriment of other teams within the context of a zero-sum game.

Consequently, the TPE business model prevents leagues from increasing the competitive balance between clubs and the overall performance of the league. The same holds true at international level for football as a whole.

4)    TPE and the transfer system

An additional concern with regard to the TPE business model relates to two founding principles underlying the transfer system of football players as agreed in 2001 by the EU, FIFA, and UEFA: contractual stability and the promotion of training.[3]

Contrary to the principle of contractual stability, the TPE business model promotes the use of the transfer system for the purpose of financial speculation. Within this framework, the trend of transferring players before the end of their contract increases.

The speculative nature of the TPE business model also has a negative impact on the promotion of training. Firstly, TPE deals are concluded without the payment of training indemnities and solidarity contributions as stipulated in FIFA regulations. Secondly, footballers having already been the subject of investment tend to be favoured above players who are locally trained.

With this in mind, it is not surprising to observe that the number of players transferred by top division clubs in 31 UEFA member associations has reached an all-time high in 2014/15. In parallel, a record low was recorded in the percentage of club-trained footballers.[4] In the long-term, these developments weaken clubs both sportingly and economically.

In addition, the TPE business model amplifies the conflicts of interest between intermediaries, fund or investment company managers and club shareholders or employees in charge of transfers. The TPE arrangements between these actors lead to the institutionalisation of conflicts of interest as the modus operandi of the transfer market.

In parallel, a process of “cartelisation” based on privileged relations develops. Established intermediaries play a crucial role in this process. The direct involvement of the most influential agents in the TPE business sphere reinforces their dominant position.[5] This further limits the competitiveness of the player representation market and the transfer market in general.

As a consequence, a few investment funds and companies collaborate on a regular basis with a close-knit group of intermediaries holding strong ties with team shareholders and managers. The key actors in these dominant networks are thus more than ever able to exercise a lasting control over more footballers and clubs.[6]

This gives them even more leverage over actors who are not part of their network. As in all economic sectors, enjoying an oligopolistic position is indeed particularly useful. Specifically in football, this drives up transfer costs for players controlled, generates ever-greater profits and consolidates the control on the market.

In addition, when TPE investors want to maintain a percentage on future transfers with the aim of maximising profits, clubs from national associations where such practices are forbidden (i.e. England) have much less bargaining power. This also leads to rising recruitment costs. From this perspective, the TPE business model is a source of inequalities between countries.

A further negative consequence of the development of the TPE business model is the creation of parallel transfer markets which are for the most part outside the scope and control of the football authorities, as well as the arbitrary justice of sporting federations.

Contrary to club officials, third-party investors do not have to respect the normal transfer windows. This gives third parties a competitive advantage over clubs. Moreover, as already mentioned, TPE agreements do not provide for the payment of solidarity or training contributions.

By sidestepping sporting regulations, the spread of the TPE business model undermines the authority of football governing bodies and the arbitrary justice of sport. This jeopardises the regulatory mechanisms agreed with public authorities to protect the interests of clubs, players and the agents wishing to operate in compliance with the existing legal framework.

5)    TPE and the rights of workers

By widening the number and variety of actors entitled to shares in transfer fees, TPE practices can restrict the freedom of movement of players in several ways. This situation raises important issues with regard to workers’ rights.

The existence of TPE deals generally makes negotiations more complicated. Transfers can collapse even though the clubs and the player concerned had reached an agreement. Moreover, as mentioned above, the multiplication of actors involved in transactions is likely to hinder the free movement of players by increasing transfer costs to the satisfaction of all parties involved.

From an ethical point of view, the fact that many players are kept in the dark regarding arrangements for the share of potential fees for their transfer is also problematic. Insofar as these agreements often have an impact on the rest of their career, players should at least be informed as to the identity of the actors involved, as well as to the terms of the deals.

Morally speaking, the written consent of players should also be compulsory to validate the contractual details agreed between the different parties involved. This is currently not the case. As a matter of fact, many TPE arrangements run contrary to the fundamental right of players to decide where they want to play.

TPE practices thus contribute in reducing the decision-making powers of footballers to the profit of third parties. In the least favourable scenarios, players find themselves in a situation of dependence towards third-party investors and intermediaries with little or no room to manoeuvre.

Young players from poor family backgrounds with little knowledge on the functioning of the transfer system are particularly vulnerable with respect to arrangements promoted within the context of the TPE business model.

This was notably raised by Marcelo Estigarribia in a recent interview published by an Italian magazine.[7] The Paraguayan footballer complained about the numerous transfers he had to face up (six over the last seven years) after that an investment company acquired the control of his career through TPE arrangements.

Of course, successful footballers can also take advantage of the networks set up by dominant actors through TPE arrangements. However, the opposite holds often true for the majority of less successful players who would have needed a more stable context to develop their skills or would have liked to have a greater control on their career path.

6)    Plea for a holistic approach

The practical functioning of the transfer market of football players and the development of the TPE business model threaten the integrity of football. A holistic approach is needed to limit the worst pitfalls of the business and reduce its profitability for third parties who do not act in the long standing interests of clubs and of football in general.

This will involve reforming the existing transfer system and making it better suited to fulfil the purpose for which it was first implemented and has since been adapted as previously described in this paper.

An efficient measure would be to entitle each team in which a player has passed through to a compensation for each fee paying transfer taking place over the course of the player’s professional career on a pro rata basis to the number of official matches played at the club.

For example, if footballer X begins as a professional in club X and plays 75 matches there before being transferred to club Y, in the event of a paying fee transfer to club Z after 25 official games played for club Y, club X is entitled to 75% of the transfer fee. And this even though club Y already paid a fee to sign the player from club X.

This reform would re-focus the transfer system back on the objectives for which it was conceived, notably with regard to contractual stability and the promotion of training. It would also have a positive impact in terms of income redistribution, a key issue in today’s football.[8]

At contractual stability level, the reform would ensure that clubs are rewarded with a substantial compensation at a later stage even if the player leaves at the end of his contract. Consequently, teams could more easily afford keeping the best talents for a longer period. This would also help tame salary inflation.

With regard to the promotion of training, such a reform would make sustainable investments in clubs or youth academies for the training of the next generation of players more interesting from a financial standpoint.

Training clubs would indeed be better compensated economically in that they would receive substantial money also in the event of a second, third or further paying fee transfer, which are generally the most profitable.

In the meantime, this would reduce the attractiveness of speculating on specific talents to obtain short-term profits with no real contribution to the smooth development of football, as it is the case with the current TPE business model.

Of course, this reform is no golden bullet. It would not solve all the problems related to corporate governance issues at club level. It would also not be able to tackle all the concerns arising from the practical functioning of the transfer market of football players as highlighted above.

However, it would have the merit to re-direct the transfer system towards the key principles underlying its creation and existence. It would also allow football governing bodies to gain a better control over its operation.

Beyond the TPE issue, all stakeholders concerned about the integrity of football should have an interest in updating the transfer system to protect the smooth development of the game. The proposed reform moves in that

[1] See UEFA 2014: The European Club Footballing Landscape, Club Licensing Benchmarking Report (http://www.uefa.org/MultimediaFiles/Download/Tech/uefaorg/General/02/09/18/26/2091826_DOWNLOAD.pdf).

[2] See Poli R., Besson R. and Ravenel L. 2015: Club instability and its consequences, CIES Football Observatory Monthly Report n° 2 (http://www.football-observatory.com/IMG/pdf/mr01_eng.pdfhttp://www.football-observatory.com/IMG/pdf/mr01_eng.pdf).

[3] See http://europa.eu/rapid/press-release_IP-02-824_en.htm.

[4] The figures are available in the CIES Football Observatory’s Digital Atlas at http://www.football-observatory.com/Digital-Atlas.

[5] See Poli, R. and Rossi, G. (2012) Football agents in the biggest five European markets. An empirical research report. CIES: Neuchâtel (http://www.football-observatory.com/IMG/pdf/report_agents_2012-2.pdf).

[6] A thorough analysis of the working of dominant networks in the transfer market of football players is available in Russo, P. (2014) Gol di rapina. Il lato oscuro del calcio globale. Edizioni Clichy, Firenze.

[7] Fabrizio Salvio, Sport Week, 27.09.2014, 34-38.

[8] See Poli R., Besson R. and Ravenel L. 2015: Transfer expenditure and results, CIES Football Observatory Monthly Report n° 3 (http://www.football-observatory.com/IMG/pdf/mr03_eng.pdf).