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
[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).