The Football Law Basics: Making Sense of Football Phrases


April 17, 2014

Introduction

Each week seems to bring a new football controversy. If it isn’t the FA charging a player with improper conduct, the governing body is having to defend its disciplinary procedures in an arbitration. There are daily references to club administrations, insolvencies and the football creditors rule, football transfers, buy-out amounts and release clauses. It does not stop there. There is current controversy about the owners and directors test which used to be called the fit and proper persons test as well as proposed takeovers of a club and potential investment. That’s without even mentioning Financial Fair Play or Third Party Investment in football players. Debates continue about the home-grown player rule in relation to the way British youngsters are trained, brought through to the first team and then there are the magical £100m figures that get quoted around the time of the play-off finals in relation to broadcasting money and parachute payments. With so much terminology creeping into the mainstream media, I thought it would be useful to briefly explain a number of these sayings. This list is far from comprehensive but will hopefully shed some light on these often used phrases.

Buy-out clauses/release clauses: A release clause in a player’s contract stipulates a pre-defined amount that a club is required to accept from the biding club. This then allows the bidding club to negotiate personal terms with the player directly. Examples of such release clauses include Joe Allen’s transfer to Liverpool and Demba Ba’s move to Chelsea. In the Luis Suarez drama over the summer, it is believed the release clause was not worded as firmly as to require Liverpool to accept the bid but merely inform Suarez and negotiate with Arsenal in good faith. A buy-out clause in contrast, is relatively widespread in Spain where a player has to buy-out his contract based on a stipulated amount set out in his contract. A release clause is usually triggered by a club; a buy-out clause can be triggered by the player.

Financial Fair Play: These rules are to effectively ensure that clubs become more self-sustainable by breaking-even in the medium to long term. UEFA, the Premier League (PL) and the Football League (FL) all have different regulations setting out the acceptable losses that clubs are able to make in order to avoid being sanctioned. Acceptable losses start from £105m over three years in the PL, to under £8m each year in the FL Championship to €45m over two years for UEFA competitions. Sanctions will vary depending on the regulations but include transfer embargos in the FL, potential points deductions in the PL and expulsion from competition in UEFA competitions. For more detail click here.

The Football Creditor Rule: This is a PL and FL regulation for when football club insolvency occurs. This is essentially where a company is deemed unable to pay its debts. When a company becomes insolvent an administrator or liquidator is appointed to manage its affairs. UK insolvency law ranks the company’s creditors accordingly. The Football Creditor Rule (FCR) essentially re-orders such established priorities in favour of the football family. It thus gives preference to players and clubs over the tax man. When a PL or FL club experiences ‘an insolvency event’, the FCR provides that football related debts, i.e. those owed to ‘Football Creditors’ (e.g. the league, players, and transfer fees owed to other clubs) are prioritised ahead of other debts, i.e. trade creditors, suppliers and HMRC. The FCR ensures that such debts must be paid off in full or clubs can face severe sanctions, such as points deductions or league exclusion.  The FCR has been recently, unsuccessfully challenged in the Courts by HMRC. For more detail see here.

Home-Grown Players Rule: There are different variations of this rule for UEFA, PL and FL competition. The basic premise is that for UEFA and PL competition, teams have to name eight home grown players (HGPs) in their 25 man squad. The FL rule states that clubs must nominate a minimum of six HGP in a match day squad. The UEFA HGP rules stipulate that four of the designated squad players have to be ‘club-trained’ and four must be ‘association-trained’. A club-trained player is defined as a player who regardless of his place of birth has been registered between the ages of 15 and 21 with his current club for a period of three entire seasons or 36 months. An ‘association-trained’ player fulfils the same criteria but with another club in the same association. The PL and FL HGPR does not distinguish between association and club trained meaning ‘home grown’ is defined as anyone registered with the English or Welsh Football Associations for three seasons or 36 months before a player’s 21st birthday. This means strange classifications are beginning to emerge with, for example, Cesc Fabregas. He cannot be classified as home-grown by Barcelona even though he was born in Spain and plays for the Spanish national team because he trained at Arsenal between the ages of 15-21.  For more detail see here.

Owners and Directors Test: Anyone wishing to buy or become involved in a PL or FL club must satisfying various PL ownership regulations. In 2004, the PL introduced the fit and proper person test which has relatively recently been rebranded as the Owners and Directors Test. The regulation is to ensure, among other things, that an owner, significant shareholder or a director of a PL or FL club has not been found guilty of a number of criminal offences, has no involvement in the day to day running of any other PL or FL club, is not prohibited from entering the United Kingdom, or has not been involved with a number of insolvent companies. An owner, significant shareholder or director of a PL or FL club has to sign a declaration before they purchase the club to provide to the PL or FL and then submit a new declaration each season or where a change of circumstances occurs.

Parachute Payments: These are payments made by the PL to clubs that are relegated from the PL to the FL Championship. Before this current season began, the PL distributed £48m over four years to relegated clubs. Due to the latest broadcasting deal increasing the PL distribution pot, it has been reported that relegated clubs from this season will receive £59m over four seasons. Of course, if they are re-promoted to the PL, they do not receive any further payments.

Premier League TV Distributions: The PL distributes its UK broadcasting monies to its member clubs in the following way: 50% is split equally, 25% is based on the number of television appearances (with a stipulated minimum amount) and 25% based on where that club finishes in the league. The overseas broadcasting monies received from broadcasters outside the UK is distributed equally amongst the clubs too.

Third Party Ownership/Investment: Third Party Investment (TPI) in the football industry is where a football club does not own, or is not entitled to, 100% of the future transfer value of a player that is registered to play for that team.  There are numerous models for third party player agreements but the basic premise is that companies, businesses and/or individuals provide football clubs or players with money in return for owning a percentage of a player’s future transfer value.  This transfer value is also commonly referred to as a player’s economic rights. There are instances where entities will act as speculators by purchasing a percentage share in a player directly from a club in return for a lump sum that the club can then use as it wishes. West Ham was fined £5.5m by the PL for breaching regulations when they signed Carlos Tevez who was third party owned. At present, UEFA and FIFA have signalled their intention to potentially prohibit this activity. For more detail see here.