January 29 – Third party ownership of footballers’ economic rights is a hot issue that raises questions of integrity, money being siphoned out the game, and unbalancing of the football market. The big European nations generally hate it, the South Americans, in particular, embrace it. Lawyer Pāvels Tjusevs examines the business and draws some uncomfortable conclusions for football.
Third party ownership in football player’s economic rights
Third party ownership is the definition that is most frequently applied to ownership of economic rights in a football player by a company which is ordinarily not associated with football. In recent years this has become a hot topic. It is a comparatively new phenomenon in Europe, however more established in other parts of the world such as South America.
This issue has become more well-known following the cases involving Argentinian football players involving Carlos Tevez and Javier Mascherano in 2006. Third party ownership demonstrates the extent to which the business of football has developed in the 21st century. This article examines the consequences of third party ownership in terms of regulatory and commercial aspects for the integrity of the game as such, as well as the game.
The up-to-date regulatory standards
The FIFA regulations on the status and transfer of players at article 18bis prohibit any third party to exercise any ”influence” over a club’s activities in relation to its players. Such current regulation does not prohibit third party ownership in principle.
France and England, for example, vehemently oppose third party ownership. The national associations and the professional leagues have effectively implemented regulations on third party ownership which ban ownership of any player by an entity other than a football club.
It is important to interpret the term “influence” in the FIFA regulations. From an external perspective, it is difficult to see how such influence would not be exercised, be it directly or indirectly, by the entity which owns the rights in the player. If such influence did not exist at all, one would have to assume that an investor, following the acquisition of player, would not want to decide when the player is sold, to whom and for how much. Even more so, it is unlikely that such investor will allow a player’s contract to expire and therefore permit decrease in the contract value, or alternatively, completely wiping out of the contract value.
The lack of similarity between these approaches stems from the interpretation of the term “influence” in FIFA regulations. Judging from an independent external view, it is hard to see how influence would not be exercised, either directly or indirectly, by the owner(s) of rights in a player. If there genuinely were no influence at all, one would have to believe that an investor, having acquired the economic rights to a player at a cost, would not want to have a hand in deciding when that player is sold, to whom and for how much.
Risks
Many of the vehicles for third party ownership are based offshore or have ownership structures that are complex and not transparent. The extent to which the beneficial ownership of the rights in players is understood remains limited and should be the subject of further investigation in order to better understand the real nature of the market.
Lack of transparency increases potential exposure to issue such as money laundering and tax evasion, thus exposing clubs to legal risks. The ramifications for this on the integrity of the game and the transfer market cannot be disregarded.
Purpose of investing in football players
The obvious response is that it is a business decision based on an opportunity for significant financial returns. Investing in several young players in South America for low amounts may be commercially attractive if at least one of these players can be sold internationally for a substantial transfer fee.
Third party ownership makes access to the football market quite straightforward due to the fact that a potential investor does not need to own a football club to participate in player trading.
Structure of the football market
It is not easy to determine if the third party ownership does or does not damage the market operation before one establishes the market principles which are fundamental.
One of the most fundamental principles of the transfer market is the so-called solidarity mechanism that exists to distribute funding between clubs at the top of the ‘football pyramid’ to the clubs at the bottom that have engaged in the player development. This is also strengthened by regulatory requirements for the payment of training compensation and solidarity.
Firstly, the solidarity principle ensures that the money generated by football stays within the game and can develop infrastructure in the long-term. Secondly, it provides for a continuous incentive to develop talented young football players.
Third party ownership destabilises both of these main principles: at first, by removing the funds out of the game for parties who are not necessarily interested in the long-term health and viability of sport; and secondly, by reducing the benefits the clubs are entitled to, when they develop top-class talent.
It could be argued traditional market football club structure is not necessary for third party owners. They could easily operate through private academies, which then might lead to grave consequences to the structure of football worldwide.
Integrity related matters
Recently sports industry generally, and football more specifically, has harmonized its approach to the integrity risks of betting and match fixing. The question, though, remains, whether something was missed in relation to third party ownership.
A league as a competition organizer should normally oppose the idea of third party ownership because the idea that the players in the competition could be potentially controlled or influenced by such parties who were not known to you, and whose motives you are unable to examine, is far from attractive.
Sustainability
As a buyer, the ability to retain top talent by acquiring a certain percentage of economic rights in a player makes it feasible for the club to obtain the registration of the player of the part of the actual market value (the remaining part being paid for, or retained, by a third party investor). In the short term, this may be a good tool for the smaller clubs in the competition for talent with larger rivals. In the long-term this might mean that money goes out of the game as clubs waive future rights in a player’s value, notwithstanding the fact that it is up to the club, and not the third party investor, that is ultimately responsible for the development of the player’s skills and therefore the generation of that value.
As a seller, a club may sell the economic rights in its best players in order to bring in immediate cash. Although this may improve the liquidity of clubs in the short term, it can also create potential conflicts of interest, and also deplete football’s assets, accentuating the problems of sustainability in club football.
Economic rights sale to third parties is an example by which football clubs have sought to increase funds by pledging their assets, despite long-term consequences. There are different examples of property securitisation in European football, such as. stadium naming rights or training facilities. This has lead to many clubs not actually owning the grounds on which they play, the securitisation of TV broadcast income or ticket revenues, and so on.
Conclusions
Existence of the following risks/problems have been identified with third party ownership:
– Unknown player owners or companies have unlimited freedom to access to the transfer market;
– Third parties may exercise their influence through an unavoidable consequence of their participation in the transfer market;
– Third party ownership undermines main principles which support the operation of the transfer market, including solidarity and contractual stability;
– The risks of integrity exist due to possible conflicts of interest and control over assets of opposing clubs;
– Insufficient transparency related to third party ownership represents a risk to the business;
– Third party ownership has opposing short and long term effects, such as liquidity and financial leverage in the short term, and, contrarily, money leaving the game and pledging of the club assets, in this way undermining club stability in the football pyramid structure.
Pāvels Tjusevs is an associate at VARUL law office in Riga, Latvia. He specialises in drafting transfer and sponsorship agreements. He also represents athletes in transfer and employment related disputes. His additional area of expertise is corporate, media law as well as mergers and acquisitions. Pavels is a president of the Latvian Association of Sports Law (LASL).
Contact him at vl.lu1734873353rav@s1734873353vesuj1734873353T.sle1734873353vaP1734873353