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.
[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.