Third Party Player Ownership: A UK Perspective


July 6, 2012

The below article sets out a brief description of how an entity apart from a football club can own the economic transfer rights of a football player. A review of the current football regulations for a English or Welsh club playing in the English Premier League (PL) or Football League (FL) is then undertaken. Finally there is an assessment and analysis over some of the current issues affecting third party player ownership (TPPO) and whether such a practice should be banned or become more tightly regulated.

What is Third Party Player Ownership?

TPPO 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 (TPPAs) 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.

Current FIFA and UK Regulatory Framework

Prior to the Tevez affair, the PL, Football Association (FA), FL, FIFA, and UEFA rules did not make any explicit reference to TPPO. UEFA and FIFA rules still do not.  This section sets out the 2012-13 season TPPO regulatory framework taking the example of an English club participating in the PL or the FL.

Past and Present PL Rules

The PL rules on TPPO were amended in 2008. Before 2008, TPPO was regulated in the PL through a generic material influence clause.  This prohibited any entity having the ability to affect the behaviour of a PL club.  The PL rules from the 2008/9 season onwards prohibited a third party owner having any economic rights in a player registered to a PL club.

The relevant PL rules are V.21 (and formerly PL rule U18) which stated that no club may enter into a contract that enables a third party:

“to acquire the ability materially to influence its policies or the performance of its teams.”

A common misconception throughout and after the Tevez case was that any third party player owner would have been in breach of the PL rules. This was not the case. It was the clause giving the owners of Tevez influence over West Ham which incurred the PL’s wrath (plus the non disclosure of the agreement itself).  It was for this reason that West Ham was judged to have breached the old PL rule – Rule U18 and fined £5.5 million by the PL.

At the time, there was therefore no express clause prohibiting TPPO; only the act of influencing a club’s policies or performance was forbidden.  Tevez’s third party contract contained a clause giving exclusive power to the third party owners, MSI and Just Sports, to facilitate the transfer of the player. West Ham did not have a veto over this right and such a stipulation breached the above PL rule as it meant that outside parties had material influence over the decision making of West Ham.

The PL decided that from the beginning of the 2008/9 season an absolute ban on third party ownership was required.A PLspokesman stated:

“The clubs decided that third-party ownership was something they did not want to see.  It raises too many issues over the integrity of competition, the development of young players and the potential impact on the football pyramid.  It was felt the Premier League was in a position to take a stand on this.  No one wants to see what has happened to club football in South America repeated over here[2]

PL rules L37-38 govern this prohibition.  PL Rule L37 is the exemption rule which covers scenarios where clubs are allowed to receive money from a third party.  Such instances include stipulations allowing clubs to receive: 1. payments or incur a liability for transfers to, or from, other football clubs; 2. enter into loan arrangements or bank loans to finance a player purchase; or 3. payments to agents[3].  PL rule L38 is the mechanism to enable a third party owned player to transfer to a PL club.  This can occur so long as the PL club purchases the third party’s economic interest in the player.  It states:

“In respect of a player whom it applies to register as a Contract Player, a Club is permitted to make a payment to buy out the interest of a person or entity who, not being a Club or club, nevertheless has an agreement either with the club with which the player is registered, or with the player, granting it the right to receive money from a new Club or club for which that player becomes registered.”

This ensures that any future transfer sums, should the player be subsequently sold, would be kept by the selling PL club.  This eliminates any third party element to any future sale transaction.

The FL rules, when the FL clubs more recently adopted their own TPPO prohibition, almost exactly mirror the PL’s rules.

Past and Current FA Rules

The FA rules on TPPO were amended in 2009. Before 2009, TPPO was regulated by the FA through a generic material influence clause.  This forbid any entity having the ability to affect the behaviour of an FA affiliated club.  The rules from the 2009/10 season appear to prohibit a third party owner having any economic rights in a player registered to any FA affiliated club.

FA Rule A.1 states that,

“All Clubs and Affiliated Associations shall play and/or administer football in conformity with these Rules.”

PL and FL clubs fall within the definition of “any football club”.  There is therefore overlap between the FL, PL and FA rules.  This rule indicates that all clubs regardless of which league they play in must adhere to all FA rules, including the FA rules on TPPO.

Until 4 August 2009, the solitary FA rule governing TPPO was Rule C 1 (b) (iii).  It stated that,

“No Club shall enter into a contract which enables any other party to that contract to acquire the ability materially to influence the Club’s policies or the performance of its teams in Matches and/or Competitions.”

This rule is still in place but has now been supplemented by the “FA Third Party Ownership Regulations” which came into force on 4 July 2009[4]. As will be highlighted below, the new FA rules appear to be without retrospective effect because they only relate to newly registered players signed after 4 July 2009.

FA rule A.2 states that before a club may register a player, the FA must be satisfied that no third party will own or continue to own the economic rights of that player.  The rules require clubs to submit to the FA any agreements related to a player, oral or written, involving a third party selling or acquiring rights, or making or receiving payments, for a player.

The new FA rules are similar in many ways to the PL’s stipulations which came into force in time for the 2008/9 season.  Rule B.1 and B.2 appear to have similarities with PL rules L37 and L38.  

At this point, brief mention should be made of the Faurlin case which is presently the only TPPO regulatory case brought by the FA against a club (Queens Park Rangers[5]). QPR at the time played in the FL but were on the verge of being promoted to the PL. They were however charged with breaching the FA TPPO regulations which could have resulted in a points deduction. For TPPO related matters, the independent regulatory commission (the Commission), found in favour of the club. This was because the Commission considered, among other things, that:

  1. The economic rights owned by company TYP had been suspended for the entirety of Faurlin’s contract so that TYP could not have had a material influence over QPR; and
  2. Rule A1 was not engaged as the club did not incur a liability when the economic rights were suspended.

There were certainly unique circumstances to the case. The FA’s regulations governing TPPO came into force on the same day that the agreement to suspend the economic rights of TYP was entered into between TYP and QPR (4 July 2009). The Commission concluded that the regulations should not have retrospective effect even though it is not clear when the agreement was actually concluded on 4 July 2009.

Nonetheless, it does leave an issue of whether a third party owner could suspend their rights and the club not incur a liability (like in this case) in order to circumvent the FA regulations. This potentially unsatisfactory position could still lead to the FA redrafting certain of its provisions. It would remain to be seen whether, as the FL rules were not in operation at the time (thus why the FA used its rules to charge QPR), a third party owner would be able to circumvent the above PL rules in the same manner.

Current FIFA and UEFA Rules

Article 18bis of FIFA’s Rules on the Status and Transfer of Players states that:

“No club shall enter into a contract which enables any other party to that contract or any third party to acquire the ability to influence in employment and transfer related matters its independence, its policies or the performance of its teams.”

UEFA Rule 18.02 ensures for all teams entering the Champions League or Europa League that:

“Players must be duly registered with the national association concerned in accordance with the national association’s own rules and those of FIFA, notably the FIFA Regulations for the Status and Transfer of Players.”

The probable reason why FIFA or UEFA do not implement more restrictive rules is because inSpainandPortugalfor example and especially South America TPPO is prevalent.  Outlawing such a practice would be both politically and practically difficult.  This is in contrast to the FA, PL and FL position which prohibit any TPPA regardless of whether there is external material influence or not.  The rationale is that it is evidently easier for national associations to implement TPPO prohibition rules with narrower scope, than it would be for FIFA or UEFA.

Contemporary Third Party Ownership Issues

Introduction

This section aims to show how:

  1. PL clubs are likely to be at a disadvantage in UEFA competitions, due to rules banning any TPPO.  This article highlights how PL clubs, have to buy out any economic transfer right when they purchase a player;
  2. Clubs in other jurisdictions are under no such requirement and can split the transfer cost with third party companies; and
  3. When non-PL clubs submit their accounts for Financial Fair Play Rule (FFPR) scrutiny, non-PL club’s transfer amortisation costs have the potential to be lower.  This makes compliance with the FFPR more difficult for PL clubs.

A Wider UEFA Financial Fair Play Context

As previously explained, TPPO is prohibited under the PL, FL and FA rules.  It means that a PL club must purchase the economic interest in any player whose registration is not 100% owned by the selling club prior to becoming registered with the PL.  Therefore a PL club cannot share the burden with an investor in only purchasing 50% of a player’s economic rights.

In order to adhere to the FFPR, clubs must break-even or fall within the acceptable deviation provisions set out in the FFPR[6]. In order to participate in UEFA competition from the 2013-4 season, clubs will have to submit accounts (for the 2011-12 and 2012-13 seasons) demonstrating that they fall within the monitoring regulations.  If they fall outside of the provisions, sanctions are likely to follow which could include expulsion from the relevant Champions League or Europa League competition.  The reason this has significance is because transfer fees (accounted for by amortisation charges in a club’s accounts) alongside player wages continue to be the largest costs that clubs incur[7].

It is likely that non-PL clubs will have a competitive advantage over PL (and Ligue 1) clubs wishing to participate in UEFA competition.  This is because their transfer expenditure may be reduced as they can share their transfer outlay with companies willing to contribute to the transfer fee.  The basic point is that PL clubs will have to account for the whole of the transfer fee paid when submitting their accounts to UEFA in time for the 2013-14 season.  This is in contrast to non-PL clubs, who will presumably only have to account for the amount spent in taking – for example – a 50% stake in a player.

A working example

Player A is available for transfer for €20 million. PL club Arsenal agrees to pay €20 million for the player but in order to register him, the club must ensure that all third party economic rights are extinguished prior to registration.  The club will therefore have a €20 million liability.Porto, if buying the same player, does not have to ensure that any third party rights are extinguished.Portomay even agree to pay the club for its stake in the player, e.g. €10 million with a third party company retaining their stake in a player.  Importantly,Porto’s liability is half the transfer amount that Arsenal would be paying for the same player.

When factoring in such a situation for FFPR compliance, clubs usually value their players in their accounts as intangible assets through an amortisation cost.  This means that when a player is purchased, his transfer cost is usually capitalised on the club’s balance sheet and is written down (amortised) over the length of his contract.  Thus in the example above, if the €20 million player was bought on a five year deal, Arsenal’s amortisation cost for each year in its accounts would be €4 million (€20 million divided by five years).  Porto’s amortisation costs would be €2 million per season (€10 million divided by five years).  The difference is therefore stark.  If both teams are participating in the Champions League which, from the 2013-14 season includes adhering to the monitoring criteria in the FFPRs, then teams likePortohave an advantage.

Indeed, PL clubs with little transfer money available, may argue that they are being unfairly prohibited from sourcing additional capital investment from companies willing to enter into transfer financing agreements.  This could lead to the PL or FL voting to change their regulations accordingly.  

Next Steps

In a relatively far reaching recent development UEFA recently stated it may not permit registration for players who participate in the Champions League and Europa League if such player transfer rights are owned by third party investors. UEFA general secretary Gianni Infantino has said UEFA “will certainly look into” the possibility of banning third party-owned players from UEFA competitions.  “This kind of player ownership is a growing threat”.

Such a decision would be controversial especially for a number clubs likePortowhose use of such third party finance is well known.  In fact, in one of their latest published accountsPortoonly owned 100% of the total economic transfer rights to five members of their 27 man squad. 

More importantly, it would mean UEFA having to oblige each club to reveal any players whose registrations were not totally owned by the club.  This could even be expanded to include a list of the owners of such transfer rights.  Such transparency could allow the football family to scrutinise any potential conflicts of interest between those who own the economic rights of a player and those who also own a stake in a football club.

If such a TPPO prohibition for UEFA competition was to be enacted, another question for UEFA to consider would be whether the provision would have retrospective effect.  If so, many clubs would effectively have to ‘buy-back’ the registrations of players who they wanted to play in UEFA competition.  Many would argue that would be unreasonable for contracts entered into prior to any proposed rule change.  If the proposed rule did not have retrospective effect, clubs who had third party owned players would still have the benefit of being able to play them in UEFA competition but would not be able to register new players.  Such uneven regulation would be far from ideal.

Is a publically available list of third party player owners required to avoid any perceived UEFA club competition callout?

Now that PL and FL clubs are prohibited from entering into TPPAs there may be a wider European context for this third party player ownership issue.  For PL and FL clubs entering UEFA’s European club competitions, there appears to be a pan-European conflict issue relating to third party player ownership.  The basic premise is whether an individual should have an ownership stake in Club A and an economic stake in a player competing against Club A?  

What if Player D, who is 100% owned by Chairman X, plays against Club A, which is 100% owned by Chairman X?

 

In both the above scenarios it is clear that conflicts of interest could arise where a third party owner of a player is unscrupulous.  One might ask how much influence one player can have on the game but if, for instance, the player was to purposely get himself sent off, clearly that can have a major impact on the game. Further, as discussed above there is no rule against an owner of a club also owning one or more players.  Such a club owner could own several players in opposing teams throughoutEurope.

What is more, with the PL and UEFA rules as they stand, there is no way to know whether such conflicts exist as there is no list setting out such conflicts.  It remains to be seen whether UEFA should require disclosure any economic ownership rights that a person or company may have in another player in the PL or throughoutEurope.

Conclusion

Banning TPPO was no doubt a far-reaching PL policy decision. Most can understand their reasons in the aftermath of the Carlos Tevez cases. Such a hard line approach has in a way by-passed the middle-point discussion about whether TPPO could be more actively regulated but not banned. Whilst the PL and Ligue 1 lobby UEFA to ensure their clubs are not sufficiently disadvantaged when competing in UEFA club competition, in the interests of transparency some have called for a comprehensive list of any entities who own third party interests to be collated and made available. Whether transparency in this traditionally opaque market will provide comfort to the regulators and fans alike remains to be seen, but in the coming months, TPPO will no doubt be making back-page headlines once again.



[1] This is an updated version of an article I published for the Entertainment and Sports Law Journal in 2009 which can be accessed here http://www2.warwick.ac.uk/fac/soc/law/elj/eslj/issues/volume7/number2/geey/

[6] See a recent article I have written on the UEFA Financial Fair Play Rules http://www2.warwick.ac.uk/fac/soc/law/elj/eslj/issues/volume9/number1/geey/

[7] See a recent article I wrote with lawyer Ariel Reck on this issue http://www.sportandeu.com/2011/12/sporteu-review-december-2011-is-published/