Introduction: FIFA’s TPO ban and its compatibility with EU competition law.
Day 2: Third-party entitlement to shares of transfer fees: problems and solutions
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: This is the first blog of our symposium on FIFA's TPO ban, it features the position of La Liga regarding the ban and especially highlights some alternative regulatory measures it would favour. La Liga has launched a complaint in front of the European Commission challenging the compatibility of the ban with EU law, its ability to show that realistic less restrictive alternatives were available is key to winning this challenge. We wish to thank La Liga for sharing its legal (and political) analysis of FIFA's TPO ban with us.
INTRODUCTION
The Spanish Football League (La Liga) has argued for months that the funding of clubs through the conveyance of part of players' economic rights (TPO) is a useful practice for clubs. However, it also recognized that the
practice must be strictly regulated. In July 2014, it approved a provisional regulation that was sent to many of the relevant stakeholders, including FIFA’s Legal Affairs Department.
Although initially we felt that FIFA would focus on strict regulation, FIFA finally tilted the balance towards the idea of an absolute ban. FIFA even put an end to the working parties it had put in place to regulate this issue. After verbal and written notices, La Liga has filed a complaint with the Competition Authorities of the European Union, since the prohibition of TPO violates the EU competition rules. In our view, apart from breaching the Treaty on the Functioning of the European Union,
it also violates the rules on competition in place in other countries, such as Argentina and Brazil.
La Liga has raised
the following arguments to show the disproportion of the absolute prohibition of TPO:
FIFA now prohibits undue third-party influence on a team and on players' agents' economic rights.
The UEFA now regulates the financial aspects of TPO in its Financial Fair Play Regulations.
Only three professional leagues worldwide have banned TPO.
The two independent studies commissioned by FIFA do not support the prohibition of TPO.
The General Assembly of FIFA concluded that TPO is a complex issue that must continue to be studied in detail.
The FIFA Working Party on TPO held only one meeting before it was banned and adapted no specific recommendations.
The FIFA Executive Committee agreed to ban TPO with no supporting report or internal proposal.
FIFA has not consulted governments,
authorities or, in particular, the European Commission before adopting the ban.
The arguments used to ban TPO reveal the lack of proportionality of the measure.
Independent experts have denounced the lack of proportionality of a TPO ban.
The lack of proportionality of the measure
FIFA’s main argument is
that TPO threatens the integrity of sporting competitions. In La
Liga’s view, both the integrity of the competition and, where appropriate, footballers' independence could be protected by measures that do not require
the full prohibition of TPO. For example, it could limit third-party economic rights to a minority percentage (>50%) together with other measures, such as limiting the number of players from the same club in which a third-party has minority economic rights.[1] Indeed,
in its ENIC/UEFA decision, the European Commission took into account that the UEFA rule only prohibits the control of multiple clubs, but not the acquisition of minority stakes in them ("(T)he UEFA rule does not limit the freedom of action of investors that have shares in clubs below the level that gives them control over the club, because clubs with such ownership structure remain free to play in the same UEFA competition”).
Consideration must also be given to the fact that the risk to the integrity of competitions is much greater when two teams controlled by the same investor play against
each other compared to when a certain number of players over whom a third party holds economic rights play each other. In the former case, the owner or investor of the clubs may want a team to lose if they can avoid relegation, win the championship or qualify for an
international competition. In the latter case, a third-party investor's interest is for players to play as well as possible to increase their economic value, regardless of the result of the match. In fact,
there is an increased risk of conflict of interest if a player has been loaned by one club to another and has to play against the club that holds the economic rights. It should be highlighted that neither FIFA nor UEFA have taken steps to regulate loans of players between clubs, despite the fact that loans account for a significant part of player transfer[2] and that independent experts recommend more restrictive regulations for loans.[3] Similarly, we fail to understand why FIFA,
prohibits TPO when it is considering deregulating the profession of player agent and accepts that only a few agents represent and share economic interests with star football players.[4]
FIFA
further argues that banning TPO will avoid speculation and inflation of
transfer costs, preserve economic flows within football clubs, protect players'
human dignity, combat economic crime, etc. La
Liga is of the opinion that these arguments violate even further the
principle of proportionality and are of questionable legitimacy. Therefore,
they should be rejected from the outset.
POLITICAL
ASPECTS
As
the Association of Spanish Football Clubs, we first and foremost defend a
regulation of TPO. Banning it would be denying a fundamental tool for our
clubs' funding and competitiveness
Based
on the current socio-economic context of the football sector and its practical
reality, it seems particularly inappropriate to reject a source of external
funding used in every sector of the economy and which, when appropriately regulated,
could create greater legal certainty for all concerned.
More
specifically, from a political point of view, it is essential to design the
regulation of TPO so that La Liga and
its clubs maintain or even increase their current competitiveness.
Indeed,
there is no doubt about the benefits provided by TPO/TPI since many clubs are in
the position to sign players who they otherwise could not afford. Moreover,
clubs also profit from the ability to anticipate revenue by selling the
rights of the squad players in their team. Thus, in terms of the
competitive balance, the use of TPO enables small/medium-sized clubs to
maintain their competitiveness against their "bigger" rivals. For
example, winning the Spanish league and reaching the Champions League final in
the 2013/14 season is an achievement Atlético Madrid would probably not have reached
without having recourse to TPO. Furthermore, it makes it possible to increase
investment in sports facilities for better training and the development of young
players.
The
above shows that the private investor also
"shares" a risk with the club:
when investing in a specific player, the investor also assumes the negative
results of the potential investment, which is then shared between the club and
the investor, greatly reducing the negative impact on the accounts of the club
in question.
And
finally, taking into account the economic and financial difficulties currently
affecting football clubs, it is necessary to support appropriate financing
mechanisms in football to foster investment in the sector, since, at present, most clubs
would not be able to survive on their current sources of income.
Should
the absolute prohibition of TPO/TPI be maintained, as intended by FIFA and
UEFA, it will be very difficult to keep the
constellation of star players in our affiliated
Clubs. They will most certainly leave their respective clubs for other
competitions and clubs that have greater financial resources. It is clear that
a large number of Spanish teams will see their competitiveness reduced and, at
the same time, the competitiveness of and
interest in our competition will plummet.
In
addition, proper regulation of this issue would avoid the risk of compromising
the integrity of competitions, since it would provide greater legal
certainty for all the involved parties. Instead, the absolute ban imposed by
FIFA will lead to the creation of a "black market” that would be out of regulatory
control and would therefore endanger the very integrity of the competitions. Thus,
it is absolutely necessary to regulate the matter appropriately.
LEGAL
ASPECTS:
In
line with the aforementioned political aspects, from a strictly legal
perspective, regulating TPO is particularly advisable since:
a. It is a common practice in the
football sector and it is a source of funding that promotes the competitiveness
of clubs. Moreover, it stimulates competition and allows clubs to attract and
retain top-level players.
In
recent years, the number of investments in football players has increased. These
investments were sought by Spanish clubs in order to finance the registration
of the players’ federative rights. Furthermore, the investor’s remuneration is (wholly
or partially) calculated depending on the positive economic results that may be
obtained through future transfers of the player’s federative rights by the club
that received the investment money.
La Liga believes that investments of
this nature can constitute a useful alternative source of financing for clubs
and investment for funds, especially now that the Spanish financial sector and
the Spanish professional football sector are undergoing a profound financial
crisis. Accordingly, these investments may foster the competitiveness of
Spanish professional football clubs in Spain and outside. Indeed, the signing
and retention of players’ federative rights cannot be secured without
third-party investments.
b.
TPO requires an adequate regulatory framework to ensure legal certainty and
promote the integrity of professional football competitions.
Based
on the widespread use of TPO in practice, La
Liga considers it appropriate to introduce certain rules and provide legal
certainty to both the clubs as well as the investors. This would require
imposing reasonable limitations and duties, and providing for the transparency
of the TPO transactions, to protect good sportsmanship and the integrity of
competitions.
La Liga’s
proposal for a regulatory framework is based on the following basic principle:
Compliance with
FIFA’s rules on the influence of third parties
in clubs, according to which no club may enter into a
contract whereby any party to said contract or third party may assume a
position that could influence labour issues and transfers in relation to the
independence, policies or actions taken by the teams of any club.
Based
on this principle, the following regulatory measures are suggested:
prohibition of certain
transactions based on the player's age;
maximum percentage of
participation in the "economic rights";
quantitative limitations
on the maximum
number of players
per club;
maximum remuneration for the
investor;
prohibition of certain clauses
that may limit the independence and autonomy of the clubs; and
prohibition of transactions
depending on the investor's particular status or business (or
participation in the same) such as shareholders, directors and managers of the
clubs.
This
regulatory framework would provide transparency
through duties of information and registration of the investors
(including full identification of the real owners) and the financial
transactions themselves.
CONCLUSION
There
is no doubt that the use of TPO/TPI needs to be regulated in Spanish
professional football. However, it is also necessary to acknowledge that the full
prohibition of TPO by FIFA will only trigger a search for "creative"
alternatives to fulfil the same purpose, using
fraud and/or other contractual fictions. Furthermore, the prohibition
of TPO will be very difficult to enforce and it will generate a great deal of
conflicts, which is obviously not a desirable outcome. This is also without prejudice to the considerable loss of
competitiveness and footballing talent for our
clubs and our competitions.
Thus,
it is necessary to devise an alternative approach to the issue by means of a specific
regulation. Indeed, we consider that third-party investment in football is a legitimate
financing vehicle for clubs, based on risk-sharing and productive investments
through private funds. However, there are also obvious threats that need to be tackled.
Therefore, in the view of La Liga, it
is necessary to establish a sustainable, secure and transparent regulatory system
that encourages sound investment in the sector and provides for a better
control of the investors.
The
benefits to be gained from regulating TPO/TPI are more than evident and would be
shared by all the stakeholders that make up the ‘football family’.
We believe that an adequate regulation in this area would pave the way for a
secure, reliable and transparent system, allowing the ‘football family’ to safely
enjoy the benefits TPO can provide.
[1]
See, for example, alternatives to the total ban proposed by Luís Villas-Boas Pires, "Third Party Ownership-
To ban
or not to ban?, LawInSport,10.12.2013:
http://www.lawinsport.com/articles/regulation-a-governance/item/third-party-ownership-to-ban-or-not-to-ban.
[2]
The Economic and Legal Aspects of
Transfers of Players”, KEA-CDES, December 2013, p. 193: “These operations involve a large number of
transfers in Europe – 21% i.e. 1333 in 2011, according to TMS”.
[3]
The Economic and Legal Aspects of
Transfers of Players”, KEA-CDES, December 2013, study performed for the
European Commission, pp. 253-254:
"Proposal 4:Regulate the loan transfer
Abusive loan transfer practices
contribute to competitive imbalance and unfairness of the competitions. We
suggest regulation to limit or prevent such abusive practices. This could
encompass:
- Limiting the number of loans by
the lending clubs
- Limiting to xx the number of
loans to the beneficiary clubs
- Regulating loan contracts between
clubs which pose a risk to the integrity of competition (for instance: a
contractual clause that prevents a player from participating in a certain
competition or a given match). Main stakeholders: International federations,
national federations and leagues.”
[4]
The Economic and Legal Aspects of
Transfers of Players”, KEA-CDES, December 2013, pp. 128-129:
“The second feature of the upper primary
segment is the concentration of superstars in the hands of a few agents
(individual or agencies). It is a question of knowing what the actual market
power of these agents is and what can be done to regulate their actions. For
example, let us note that Gestifute, the Portuguese agency led by Jorge Mendes,
has in its portfolio José Mourinho, Cristiano Ronaldo, Nani, Anderson, Pepe,
Ricardo Carvalho, Raul Meireles and Miguel Veloso. This agency has generated €369.85m in
transfer rights (Poli, 2012). The role of the major sporting agents should be
better known, in order to assess whether they are responsible for an increase
in the dualisation of the labour market and, therefore, for a deterioration in
competitive balance. Small championships can no longer hang on to their stars
and the major championships are competing to attract them, thus contributing to
the inflation of speculative bubbles regarding the salaries and transfer fees
of these stars.
In the lower primary market, as
in the higher primary market, the role of agents is decisive in transactions
and we once more find the same recommendations:
An analysis of the concentration
of wage
- bills.
- An analysis of the concentration
of transactions at the agent level.”