International transfer disputes in ice hockey - Part 3: a three-part solution

Published 21 May 2014 By: Ryan Lake

Alexander_Ovechkin

In Part 2 of this series, the author explored potential solutions to the problem of international player transfer disputes in ice hockey, while also exposing their potential limitations. In Part 3, the author puts forward his own three-part solution, which he proposes offers a holistic resolution to the problem.

 

Three-part solution to resolve international transfer disputes in ice hockey: introduction

The international hockey world is comprised of several different leagues all-vying for the most competitive and financially viable product. Many of the international leagues and clubs have difficulty competing against the National Hockey League (NHL). As a consequence, each league is constantly trying to acquire and retain the most talented players. The process of acquiring players from other leagues is known as player transfers. Traditionally the International Federation for that particular sport governs player transfers.1 In soccer, for example, it is Fédération Internationale de Football Association (FIFA) and in hockey it is the International Ice Hockey Federation (IIHF). However, the current structure of international hockey restricts the IIHF’s ability to govern such transfers. This lack of centralized governance has resulted in many contested player transfers. 

In particular, the lack of universal procedures to regulate the transfer of players between leagues is a central issue of concern. In the past, several attempts were made to address the issues surrounding international transfers. These attempts, however, have created a complicated system that failed to bring harmony to the leagues. The primary issue is that the IIHF does not govern all of the top-level leagues in the world, but rather exerts control only over its member leagues, which does not include the NHL. With that being said, the remainder of the world’s top-level leagues are members of the IIHF and, therefore, subject to the regulations surrounding international player transfers. These member leagues include Sweden’s Elitserien, Switzerland’s National League A, Germany’s Deutsche Eishockey Liga, the Czech Republic’s Extraliga, and Finland’s SM-Liiga. 

Developing a solution to the international transfer issue must take into account several important factors. These factors include the structure of the individual leagues, financial restrictions placed on clubs, political relationships between the leagues and the IIHF, and the willingness of the leagues to work together. This article proposes a three-pronged system to address the endemic problems in the transfer of players in international hockey. 

First, in order to ensure the success of any system, it is crucial to have each league invested in the system and is, therefore, vital to close the distance between the leagues. The creation of an interleague competition would likely foster the required cooperative culture. Secondly, a universal and standardized arbitral procedure is necessary in order to handle transfer issues as they arise. Finally, a system should be implemented that will allow players to earn their maximum value while allowing clubs to receive adequate compensation for a player. Accordingly the governing bodies of hockey should create a Champion’s League of Hockey, develop a Hockey Arbitration Tribunal, and implement an modified Third-Party Investor model. The incorporation of these systems could dramatically reduce the number of disputed transfers. 

Champions League of Hockey 

A culture of cooperation among the leagues is necessary in order to minimize the occurrence of player poaching. A more cooperative culture may be fostered through an international club tournament among the top clubs in the world, thereby investing each league in the success of the other leagues around the world. An annual tournament highlighting the most successful hockey clubs would not only enhance the brand of the best clubs but would also generate additional revenue for the leagues. Further, this tournament could create competition among the leagues, which will serve to increase the quality of hockey throughout the world. Other sports that have undertaken club competitions have enjoyed the aforementioned benefits and many more. 

Club tournaments experience immense popularity and success in other sports. For example, FIFA, the International Federation for soccer, conducts tournaments throughout the world, known as Champions League. The most successful Champions League takes place on the continent of Europe. The tournament is held annually and has developed into one of the most successful sporting events in the world. In 2012 the European version, Union of European Football Associations (UEFA) Champions League, generated an estimated €1.34 Billion in commercial revenue.2 Examining UEFA and how the world’s most successful club tournament is administered provides a model to evaluate how a club tournament may operate in hockey.

UEFA Champions League

The UEFA Champions League, Champions Club Cup is one of the most coveted trophies in international soccer.3 The tournament was first held in 1955 and consisted of a sixteen-team pool.4 The competition has since expanded a great deal. Currently the Champions League starts from a pool of 76 teams, and through several stages, the pool is narrowed down to 16 playoff teams.5 These clubs compete to advance through three playoff rounds in order to play in the final game.6

Each knockout playoff round consists of a two-game series.7 These games are played in a home and home format, ensuring that each playoff team gets at least one home game in each round.8 The victor is determined by the “team which scores the greater aggregate of goals in the two matches.9 In accordance with Regulations of the UEFA Champions League, each playoff team is allowed to keep revenue generated by the sale of tickets for home games.10 Moreover, the visiting club “assumes its expenses for travel, board and lodging, unless the two clubs concerned agree otherwise.11 Therefore in each playoff round, each team is entitled to the revenue generated by home ticket sales but must pay for their own travel expenses for each away game. 

Every club that participates and reaches the group stage of the Champions League is entitled to a share of the marketing and television revenue that is generated by the 96 group matches and the twenty-nine playoff games. The “96 group matches consist of 16 rounds of 16 matches, eight quarter-final matches, 4 semi-final matches and the final of the UEFA Champions League.”12 According to the most recent regulations, the qualifying teams are entitled to 75% of the revenue received by “UEFA from television and sponsorships (including, without limitation, licensing and merchandising).” This shared revenue will be distributed evenly among the teams until the total revenue received exceeds €530 Million.13 Excess revenues over €530 Million, are distributed in the following manner: “82% to the 20 clubs involved in the play-offs and the 32 clubs involved in the group stages of the UEFA Champions League, and 18% remaining with UEFA.14

The Champions League Final, by contrast, is completely controlled and organized by UEFA. UEFA controls the sale of all tickets.15 Therefore, neither club profits from ticket sales. The two teams to reach the finals, however, are entitled to additional revenue. UEFA regulations provide for a process of developing a distribution model before the final match. In this process, 09 “[b]efore the final, the Executive Committee decides on the financial distribution model in favor of (a) the two finalists; (b) the host association (in accordance with the staging agreement); (c) UEFA.”16 Each year these financial distributions may differ, but each club that reaches the finals is ensured a compelling amount of additional revenue. The popularity of the event ensures this additional revenue. For example in 2011-12 more than 178.7 million viewers worldwide watched the championship game alone.17 The 2011-12 Championship game was viewed by 2 million in the United States, where soccer is decidedly the fifth most popular sport.18

The massive worldwide viewership generated €1.34 Billion in commercial revenue.19 According to the revenue sharing procedure, €754.1 Million was distributed among the participating teams.20 Chelsea FC, the victorious club received €59.935 million, consisting of €29.9 million for participation and reaching the final of the tournament, and €30.035 million as part of the television revenue sharing.21 The teams to reach the top eight earned between €59.935 million and €31.569 million.22 This massive influx of income for the participating clubs is the driving factor behind the team’s wiliness to participate in the tournament. Further, the ability to attract the top level teams in Europe has continued to grow the popularity of the tournament, which in turn generates more revenue. 

The model that UEFA has pioneered is an excellent starting place. In order to work within the confines of hockey several changes will have to be made, while maintaining the goal to turn a club hockey tournament into an income-producing asset for all of the participating leagues. 

IIHF Champions League of Hockey

A successful club tournament in the world of hockey requires that the competition generate revenue within the first few years. One way to ensure this occurs is to invite the best teams, from the best leagues, to participate in the tournament. The top leagues in the world include; the NHL, KHL, Sweden’s Elitserien, Switzerland’s National League A, Germany’s Deutsche Eishockey Liga, the Czech Republic’s Extraliga, Finland’s SM-Liiga and Slovakia’s Extraliga. 

To ensure the participation of the top teams, the tournament will have to be scheduled so as not to interfere with the playoffs or regular season of each league. Consequently, the tournament will have to be held in the offseason. This is one major difference from the current IIHF World Championships, which are held during the NHL playoffs, and thus limit the quality of players that can participate. An opportune time to hold the tournament would be in August before the start of training camp for each league. Holding the tournament in August allows the players to recuperate from a long season, and also provides them with an opportunity to skate into shape for the next season.  

A successful format would invite 16 teams to participate in the tournament. The 16 team pool would be comprised of the 4 top teams from the NHL (the two teams to reach the western conference finals and the two teams to reach the eastern conference finals); the 4 top teams from the KHL (the four teams to reach the semi-finals); the champions from Sweden’s Elitserien, Switzerland’s National League A, Germany’s Deutsche Eishockey Liga, the Czech Republic’s Extraliga, Finland’s SM-Liiga and Slovakia’s Extraliga; and the two top teams from the Continental Cup (a club tournament currently held by the IIHF for clubs in developing hockey leagues).

Using the 2012 season as an example, the invited teams would have included: the Los Angeles Kings (NHL), Dynamo Moscow (KHL), ZSC Lions (Swiss League), HC Bratislava (Slovakia Extraliga) Donbass Donetsk (Continental Cup finalist) SKA St. Peterburg (KHL), New York Rangers (NHL), Traktor Chelyubinsk (KHL), JYP (Finland SM-Liiga), Rouen Dragons (Continental Cup Finalist), HC Pardvbice (Czech Extraliga), Eisbaren Berlin (German Deutsche Eishockey Liga), New Jersey Devils (NHL), Avangard Omsk (KHL), Laea HF (Sweden Elitserien), and the Phoenix Coyotes (NHL). Figure 1 below is a potential bracket for the tournament. 

Screen Shot 2014-05-21 at 16.03.52

Based on the bracket above, the tournament should have a strong fan base, and, therefore, generate significant revenue. Imagine a tournament featuring the Russian born NHL superstar, Ilya Kovalchuk of the New Jersey Devils playing two games against Dynamo Moscow, with one game in New Jersey and another in Moscow. A final game contested between the New York Rangers and Moscow Dynamo would wage the two largest cities in the United States and Russia against each other. With matchups such as this, the marketing possibilities are endless.

Like in soccer, each round of the tournament would be comprised of a home-and-home game series, with the tiebreakers being total goals scored and away goals. This ensures that each team in the competition has a home game in each round. However, the finals will be a one game event held at a neutral site. In order to be crowned champion, a team would be required to play a total of seven games. The total number of games any one club has to play is limited in order to reduce the risk of injury to the players as well as to make each game more meaningful and thus increase the potential viewership. 

The revenue generated from the tournament would be shared in a fashion similar to UEFA Champions League, with a few meaningful changes to ensure the participation of the top leagues. Principally, the revenue sharing model Although in UEFA, which allocates tournament revenue among the individual clubs that participate in the competition would not work in the hockey world. Rather, due to the structure of the NHL, the revenue would have to be shared with the leagues, not the clubs. According to the Collective Bargaining Agreement (CBA) between the NHL club owners and the players, all non-league games must be agreed to by both the NHL and the NHL Players Association.23 The CBA also requires that all revenue from interleague games be divided equally between the NHL and NHLPA.24 Therefore, the percentage of the revenue that each NHL club generates will have to be equally divided between the NHL and the NHLPA. This is in line with the goal of the tournament, which is to incentivize and grow the leagues not the individual clubs.

The reasoning behind awarding the revenue to the leagues and not the clubs individually is due to the select number of the teams that are invited to participate in the tournament. Further, the allocation of revenue to the leagues will act as an incentive for the top leagues as well as an enforcement mechanism for the Hockey arbitration tribunal, discussed in the next section, to enforce judgments against certain clubs and leagues. 

Importantly, however, the revenue sharing will not be equal for each participating league. The NHL and the KHL will likely need to receive four-times the revenue than the rest of the participating leagues. The rationale behind this is that both the NHL and the KHL are providing four teams for the competition, and therefore, deserve a greater share of the revenue. Moreover, the marketability of the tournament would greatly depend on the participation of the NHL and KHL. As a result, it is important to incentivize their participation by creating a new revenue stream for the NHL and KHL to tap into.

Along with the revenue generated from the tournament itself, the competition will allow the clubs and leagues to grow their individual brands. A global platform will increase the exposure of club brands to the entire hockey world. For example, using the tournament bracket above, the New York Rangers, would be well situated to take their nationally recognized brand and turn it into an international icon of hockey. In the soccer world, this transformation has occurred with many top-level teams. The most successful team at tapping into the global market is Manchester United of the English Premiere League. Manchester United generated $166 Million in commercial revenue during the 2010-2011 season.25 Manchester United’s ability to grow their brand was greatly assisted by the team’s success in the UEFA Champions League. Therefore, it is entirely possible for the top teams in the world of hockey to grow their brand in the same manner as Manchester United. 

The creation of a Hockey Champions League by the IIHF, in cooperation with the NHL, is vital in solving the transfer dispute issues and will create opportunities to foster a new revenue stream for the top leagues as well as providing an annual stage for the world of hockey to come together and grow the sport. Players in the IIHF member leagues will have an international platform to demonstrate their abilities, and maximize their earning potential. Moreover, invitations to the competition can be restricted as part of the enforcement arm of the Hockey Arbitration Tribunal. For these reasons and many others, the creation of the Champion League of Hockey is essential if the hockey world hopes to grow the sport globally and maintain collegiality between the leagues. Additionally, the fostering of mutual respect between the leagues will have a dramatic effect on the international player transfer issues.

Hockey Arbitral Tribunal 

International hockey is in need of an organized structure that can handle disputed transfers in a fair and equitable way. While the IIHF and its member leagues have the option to submit issues to arbitration under the jurisdiction of the Court of Arbitration for Sport (CAS).26 The NHL, however, does not utilize this court.27 The NHL’s reluctance to use CAS may arise out of concern over losing decision-making power to a third-party. To address this concern, any new system will need to create a separate and unique arbitration tribunal to deal with hockey specific issues. This need was also recognized by Fédération Internationale de Basketball (FIBA), the international federation for basketball. FIBA developed the Basketball Arbitral Tribunal (BAT).28 This tribunal is charged with handling all disputes for FIBA, with the exception of international player transfers, which is dealt with directly by FIBA.29

 

Structure of BAT

First, before discussing the potential framework of a court for hockey arbitration, it is beneficial to examine the structure of BAT.30 When a dispute arises in an FIBA member league, a claim can be brought to BAT for resolution. The dispute can range from, a breached player contract, a dispute between a player and agent or any other basketball related issue.31 For a dispute to be heard by BAT, the parties must agree in writing to submit to BAT’s jurisdiction.32 To encourage the use of BAT, the tribunal developed a standard arbitration clause.33 The inclusion of this clause in all basketball related contract’s is recommended by FIBA.34 BAT is located in Geneva, Switzerland, which also happens to be where FIBA is headquartered, but the arbitration can be conducted anywhere in the world.35

Once a dispute is brought before BAT, the president assigns an arbitrator to hear the dispute.36 In order to fund the tribunal, the party bringing the suit is required to pay a handling fee.37 However, the party found at fault will be required to reimburse the party asserting the claim.38 The arbitration is conducted in a similar manner to that of a court trial.39 Each side is allowed to present evidence and examine witnesses.40 The decision of the arbitrator is typically issued within six weeks after the completion of the arbitration hearing.41 The speed of the process is tremendously appealing, especially when compared to the amount of time a case can languish in a traditional court. 

Moreover, a party can appeal the decision to CAS.42 This process allows for the dispute to not only be heard by the basketball experts at BAT, but also considered by experts in the world of sport at CAS. An arbitration award issued by either BAT or CAS is enforceable in any country that is a signatory to the 1958 Convention on the Recognition and Enforcement of Foreign Arbitral Awards also known as the New York Convention.43 The Convention was promulgated by the United Nations, and today has been ratified by the vast majority of nations in the world.44 In fact, 146 of the 193 members of the United Nations have become members of the New York Convention.45 If, however, challenges arise in the enforcement of a decision, FIBA has reserved the right to sanction any party that fails to uphold a decision of the tribunal.46 This enforcement regime ensures that the decisions of the tribunal are followed. This is a fundamental aspect of any successful tribunal, and possibly the most difficult hurdle that hockey will have to overcome. 

The success of BAT is impressive. From the time of its creation in 2007 to 2011 the tribunal has received 178 requests for arbitration.47 The number of requests grows each year, which strengthens the reach and power of the tribunal.48 Starting in 2007 BAT received two (2) requests for arbitration.49 That number grew to twenty-five (25) in 2008.50 In 2009 forty-five (45) requests were submitted.51 The year of 2010 saw the number of requests jump to eighty (80).52 Finally, from January to April in 2011 twenty six (26) requests had been processed.53

The NBA’s relationship to BAT offers another insight into how hockey should develop an arbitration tribunal. Like the NHL, the NBA operates outside the scope of the international federation.54 While the NBA is an affiliate of FIBA, the NBA has developed its own internal procedures and arbitration process to handle intra-league disputes.55 Similarly, to the NHL’s concerns, it was crucial for the NBA to retain control over these internal disputes. In order to accomplish this BAT allowed the NBA to have sole jurisdiction over disputes that arise in the NBA.56 However, unlike BAT a hockey arbitral tribunal should have jurisdiction over disputes arising from international player transfers. Since a hockey tribunal would be similar to BAT, in that, it is a neutral tribunal which is not funded by the IF, the NHL should decide to allow international player transfer disputes that involve NHL or future NHL players to be handled by the tribunal.57

 

Hockey Arbitral Tribunal

An arbitration tribunal specific to hockey would provide a needed forum to expeditiously resolve the international transfer disputes. The general structure of a proposed Hockey Arbitral Tribunal (HAT) could be substantially similar to that of BAT. However certain changes would have to be made in order to accommodate the unique concerns of the NHL and the KHL. 

Firstly, like BAT, HAT should be a neutral self-funded tribunal seated in Lausanne, Switzerland. The location of Lausanne makes sense since CAS is also located there. Further, Lausanne is removed from the direct influence of the IIHF, which is located in Zurich.58 Moreover, Swiss public law has a long tradition of conducting neutral arbitrations.59 While the seat of HAT would be in Switzerland, the arbitration could be held anywhere in the world. Additionally, satellite offices of HAT should be located in Montreal and St. Petersburg. These locations would provide convenient access to both the NHL and the KHL. Furthermore, HAT should recognize three official languages, English, French, and Russian. The inclusion of these languages would ensure that every party would have the ability to fully address the tribunal. 

An executive committee should govern the tribunal and be comprised of ten individuals, with the NHL placing two of the individuals on the board. Similarly, the KHL shall appoint two members of the committee and Finland, Sweden, Switzerland, the Czech Republic, and Slovakia, shall all appoint one individual each. The final member of the committee shall be elected by a majority vote of the remaining IIHF member leagues. The committee shall be tasked with electing a president of the Hockey Arbitral Tribunal, who will govern the day-to-day operations of the Tribunal. Additionally, the committee will approve all arbitrator’s eligible to operate within the tribunal, which should be conducted through an application process. 

Secondly, HAT should have jurisdiction over all disputes that arise within IIHF member leagues. This authority would ensure that all disputes that arise within the IIHF are fairly and equitably resolved in a consistent manner. This process will create a jurisprudence that will provide guidance to all parties as to how certain disputes will be resolved. Moreover, the ability to hear a variety of different disputes will ensure that HAT is well funded and help maintain its neutrality. 

Additionally, HAT shall not have jurisdiction over any internal disputes that arise within the NHL or the KHL. This will allow the leagues to continue their self-governance and maintain their ability to control intra-league issues that arise. This lack of jurisdiction over NHL and KHL internal matters will likely be a key component that the NHL and KHL will require. Since the NHL and KHL are not likely to relinquish any power that they already possess it will be important to limit the power of HAT to only IIHF internal disputes and international player transfers.

When dealing with IIHF disputes, the arbitration panel could be structured in a manner similar to CAS. When a dispute is brought before CAS, the parties have the option of employing a sole arbitrator or a panel made up of three arbitrators.60 When the parties agree to use a panel, each party nominates one arbitrator.61 The two nominated arbitrator’s then choose the president of the panel.62 This process is designed to create a neutral panel, which will deliver a fair and just decision.63 This framework has been highly successful in CAS and should be utilized by HAT when determining IIHF member league issues. 

When addressing international player transfers, HAT should also require the use of a three-arbitrator panel to ensure a fair and just result. 

Thirdly, the issue of enforcement is a serious obstacle that must be overcome in order for HAT to be successful. Currently, United States and Russian courts have failed to consistently enforce arbitration judgments issued by the other country. The Alexander Ovechkin case is a prime example of the lack of consistency in the enforcement of arbitration judgments.64 In Ovchkin’s case a Russian arbitration committee issued a judgment in favor of Dynamo Moscow, and declaring that Moscow retained the rights to Ovechkin and thus blocking his ability to sign with the Washington Capitals.65 However, Ovechkin circumvented the decision of the Russian arbitration committee and signed an entry-level deal with the Capitals.66 In an effort to prevent Ovechkin from joining the NHL, Dynamo Moscow filed an injunction in United States Federal Court seeking to have the Russian arbitration judgment enforced in the United States.67 However, for a variety of reasons, the Federal Court dismissed Dynamo’s case. This case is just one of many where arbitration judgments have not been enforced. The lack of enforcement must cease if the HAT is to be respected as a legitimate tribunal. Using the following two-pronged approach can ensure enforcement of HAT judgments. 

In the situation where a HAT judgment is not honored, the Executive Committee would turn to the second prong in the enforcement regiment. This prong would allow the Executive Committee to issue a sanction on any league that currently has a club or player that refuses to follow a judgment of HAT. Likely, any such sanction will prohibit the league and its member clubs from participating in the yearly Champions League tournament. 

The ability to issue such a powerful sanction encourages the member leagues, like the NHL and KHL, to persuade individual clubs to abide by the HAT ruling. Otherwise, the entire league, including the club owners, would suffer the economic loss of not participating in the Champions League of Hockey. The economic consequences and the internal pressures that result from an Executive Committee sanction would cause many organizations to pause before violating a HAT judgment.

 

Summary

Both the Court of Arbitration for Sport and the Basketball Arbitral Tribunal have demonstrated that courts of arbitration play a vital role in the governance of international sport. The international hockey world has been plagued by international transfer disputes and is in desperate need of an organized structure that can handle these issues. The creation of HAT will ensure that disputed transfers are handled in a consistent, fair, and equitable fashion. Further, the judgments of HAT will create jurisprudence that will shine a light on the reasoning and rules surrounding international player transfers. HAT can accomplish this without infringing on the power of the NHL and the KHL. Importantly, the Executive Committee of HAT is entrusted with the power to issue sanctions that contain real economic consequences not only on the offending clubs, but for the leagues that support such activities by their clubs. Therefore, HAT is a vital aspect of the three-part solution, which if instituted, can resolve much of the international disputes in hockey. 

 

Modified Third-Party Investor model 

The third element of the presented solution is the implementation of a modified third-party investor model, which will be similar in concept to the model that is currently utilized in international soccer. The third-party investor model is best explained after a brief discussion of the structure of FIFA and the international transfer system. First of all, FIFA is based on a pyramid structure. At the top of this structure is the International Olympic Committee (IOC).68 The IOC has recognized FIFA as the International Federation (IF) for the sport of soccer.69 Therefore, FIFA is on the second level of the pyramid, under the IOC. One step below FIFA are the Confederations. The Confederations are associations of National Federations in specific regions of the world, such as UEFA.70 In the hierarchy, the National Federations (NF) lie below the Confederations. The NFs are the recognized governing body for the sport in each country, and in many countries, run the top leagues.71 Finally, the base of the organizational structure is made up of the players, clubs, coaches and referees.72

This pyramid model has prompted the development of many competing leagues and clubs. The competition among the leagues and clubs for the top players has created many issues. One issue that FIFA confronted was tampering by clubs governed by separate NFs. In response to this issue FIFA has been charged with protecting the contracts between clubs and players, from being tampered with by foreign clubs.73 In order to combat this issue FIFA developed an international transfer system.74

The international transfer system developed by FIFA is designed to allow players to transfer between leagues in different countries while they are under contract with a club.75 In order for the transfer to be approved by FIFA the club acquiring the player must pay a transfer fee to the club that currently employs the player.76 This transfer fee is designed to compensate the club for the development and training that was invested in the player.77 Further the player must consent to the transfer.78 It is also important to note that the transfer fees are only paid to the club that is releasing the player.79 The player does not receive any of this money.80

 

Modified International Soccer Third-Party Investor Model 

With the structure of FIFA and the international transfer system in mind, the third-party investor model can more easily be analyzed. Before exploring the concept of the third-party investor model, it important to note that the model, as operated in FIFA, is a significant point of debate and contention in the soccer community. Further, this article will explore how the model is currently being used in FIFA and address several modifications for its successful implantation in hockey. 

 The current FIFA third-party investor model is based on the concept that each player is comprised of a bundle of rights. This bundle includes federative rights, labor rights, and economic rights.81 Federative rights refer to the player’s right to register with an organization or club that is governed by FIFA.82 Labor rights refer to the player’s right to contract for employment with a club.83 The final right in this bundle, economic rights, refers to the players; 

Exclusive right to fully exploit all of the commercial and economic interests in, over, of and to the Federative Rights of a specific player including, without limitation, the rights over the economic result of a future, whether temporary or definitive, transfer of the respective player to another club.84

These rights are interconnected and rely upon each other to exist. 

The third-party investor model focuses on the economic rights of the players. When a player signs an employment contract with a club, the player may agree to allow the club to sell a percentage of his economic rights in order to finance his salary.85 In many parts of the world, the existence of the sport of professional soccer depends on the income generated by the selling of these economic rights to third parties.86 In theory when a third-party invests in the economic rights of a player, the investor is paying a portion of the player’s salary for the club. In return for paying a portion of the salary, the investor retains a right to a percentage of the fee the club will receive in a transfer.87 The capital generated by the third-party investors allows clubs to hold on to promising young talent until the player has reached his maximum value. This system allows the clubs to spread the financial burdens of keeping top talent while allowing them to maximize the return that they can generate in a transfer agreement. Further, the player benefits by receiving a higher salary and is allowed to develop into the best possible player they can be. 

In Brazil, for example, many clubs are not flush with income. This lack of capital makes it difficult for these clubs to hold on to their best players and pressures the clubs to transfer the player for a low transfer fee.88 To combat these financial issues, clubs will sell a percentage of the economic rights of top players to third-party investors.89 For example, a top player may demand $4 million a year to renew a contract with a team; however the team can only afford to spend $2 million on the player. This leaves the club in a position where they can either transfer the player overseas for an amount substantially lower than the amount the player will generate in a year or two, or the club can raise capital to pay the player. To raise this capital the clubs will sell a percentage of the player’s economic rights to a third-party investor.90 Therefore, a 5% interest in a player’s economic rights could be purchased by an investor for $100,000. The $100,000 will be used to help pay the player’s salary. The club will contract with different third parties until they have enough capital to pay the player’s requested salary. 

The return on the investment made in these players is realized if and when the player is transferred internationally. When a player is transferred internationally, the transferring club is entitled to a transfer fee paid by the club receiving the player. When this transfer occurs the third-party investors will be entitled to a percentage of the transfer fee.91 In our example of an investor buying a 5% interest in the economic rights of the player, the investor will receive 5% of the total transfer fee. Consequently, if the transfer fee is $10 million, the investor will see a return of $500,000. Further, with transfer fees reaching as high as €94 million, the returns generated by the third-party investors can be very appealing.92 This system of generating capital on a whole has been remarkably successful. 

The current structure has failed in the past to properly regulate the control an investor has over the clubs decision to transfer the play. The opportunity for corruption and undue influence has caused many to question the effectiveness and morality of the model. These concerns are valid and should be remedied in FIFA and any other sport that seeks to use a similar model. Additionally, the buying and selling of an individuals rights has raised ethical questions over the practice. These concerns have been thoroughly examined by experts in the field. For more information on these concerns please review the articles published on this site.93

 

Modified Third-Party Investor Model in International Hockey

A modified third-party model, which addresses many of the concerns raised in FIFA, may prove to be a successful means to grow other international sports. International hockey is one such sport that may be able to easily adopt this system On an international level, hockey is structured in a way that is similar to FIFA; however hockey possesses its own unique challenges to the third-party investor model. 

Before any model could be used in international hockey several safeguards would have to be put in place and agreed to by all leagues wishing to utilize the system. These safeguards should protect against undue and improper influence of third party investors and other ethical and moral issues. The hockey world should examine the Tevez saga of the English Premier League (EPL) when installing safeguards around undue and improper influence of third party investors over players and clubs. 

The EPL decided to outlaw the third-party investor model after the Tevez saga gripped the country.94 Carlos Tevez was a player on West Ham of the EPL. The club and Tevez agreed to a contract with two third-party investors.95 However, the contract allowed the investors to object to any proposed transfer of Tevez if the transfer fee was not up to the standards of the investors.96 The EPL and England as a whole were shocked by this agreement and determined that third-party investors were having too large of an impact on the game.97 Thus, the EPL decided to ban the use of third-party investors. Therefore, when an EPL team obtains the rights of a player who has a third-party investor agreement, the club must buy the investors out. Several other countries have taken a different approach, and have only prohibited the third-party investors from having any influence on player transfers.98

Another issue that will have to be addressed before a third party model could be successfully implemented is whether the individual leagues would allow for its implementation. Each league has its own bylaws and procedures that govern the sport within that league. Currently, there are two basic types of leagues that exist in the world of hockey. 

The leagues are known as closed leagues and open leagues.99 A closed league is when the league is based on a franchise model and precludes the elimination or addition of a club without the approval of the entire league.100 An example of a closed league is the NHL. An open league, on the other hand, is very similar to the leagues under FIFA. This league model allows for movement of clubs between different tier leagues.101 This is the model used by most European hockey leagues. The movement of clubs between different tiers is known as relegation and promotion. While the promotion and relegation procedures vary among leagues, a general example may be used to illustrate the concept. Therefore, if for example, Modo, an elite club in the Swedish Elitserien had a miserable season and was the worst team in the top-level of the Elitserien, the team would be relegated to a lower level league for the next season. Additionally the top team in the lower league would be promoted to the top-level to take Modo’s place. While there are many differences between open and closed leagues, the most important difference is the power of the team owners and the players. 

In a closed league, the owners hold a great deal of power. The primary reason for this is that the owners have no competition for retaining their position as a club owner in the top league. Since the owners inherently have greater power, the players have banded together in strong centralized unions to strengthen their position. The unions in closed leagues have more power since they are dealing with a fairly consistent group of players and are negotiating against a rarely changing group of owners. Due to the strength of these two groups, the leagues typically operate under a collective bargaining agreement. Since all aspects of the game are negotiated and codified in the CBA, it is very unlikely that an agreement regarding a third-party investor system would be made. 

An agreement allowing for third-party investors is unlikely to be included as part of the CBA for several reasons. First of all, the owners would not be amenable to a third-party influencing their business or hockey decisions. Put simply, most owners are extremely successful businesspeople and are rarely willing to hand over any power to a third-party. This is especially true when it is possible that the third-party could apply pressure for the owners to make certain player decisions. Secondly, the unions would not embrace the possibility of a third-party having an influence over the career of a player. Furthermore, it is unlikely that a third-party would be interested in investing in a player that has already made it to the NHL. This is because once a player is playing in the NHL it is unlikely that they will be transferred to another league during the prime of their career. 

Additionally, it is likely that the NHL would follow the example of the EPL and opt to prohibit the presence of third-party investors. Moreover, it would make sense for the other top-level leagues to follow the example of the other European soccer leagues, and limit the influence of the third-party investors. While the NHL would have limited use for the third-party investor system, the same cannot be said for the rest of the hockey world. The IIHF member leagues are constantly losing their most talented players to the NHL and only receiving a nominal fee in return. With the implementation of a modified third-party investor system, these leagues could afford to keep their talented players and grow the sport in their home countries. Further, the third-party investor model would drive up the transfer fee that the IIHF member leagues could demand from the NHL, in order to buy out any third-party investors. However, under the current NHL CBA, individual clubs are prohibited from paying transfer fees.102 This policy will have to be amended if this model is implemented. Currently, transfer fees are prohibited in an attempt to ensure that the available pool of money is paid directly to the players currently in the NHL. This goal, however, can still be accomplished, if the CBA is structured in a manner that will not apply a hit to the clubs salary cap for money spent in a transfer. This will ensure that the available pool of dollars will remain with the current NHL players, and it will be up to the club owners to decide whether to spend additional money to retain the rights of a foreign player. 

The third-party investor system, if implemented with the proper regulations surrounding it, could propel hockey into the next level of importance in the sports world. This system would allow the IIHF member Leagues, and the KHL to be able to fully develop the young talented players, which they have invested in from an early age. The ability to fully develop their players would greatly benefit the clubs and leagues. Further, the increasing number of talented players will help draw the attention of fans around the world and help grow the sport. Additionally, it would bestow a greater amount of leverage on the international clubs and leagues when negotiating with the NHL. This system would also benefit the NHL since the league would receive more developed players that can play at a higher level. Overall, the system could cause the level of play to improve throughout the world. International hockey needs only to look at FIFA to see how this system has benefited the world’s most popular sport. In the end, a modified version of FIFA’s third-party investor model is an immensely appealing avenue to grow the sport, and could enhance the level of hockey throughout the world. 

 

Conclusion

The challenges that face the world of hockey are diverse and intertwined with multiple competing interests. As a result, there is no simple solution to the varied issues that arise between the actors on the world stage of hockey. While no one resolution will solve all of the issues, the proposed three-part solution, if implemented, would be a step in the right direction. 

First, the creation of a Champions League of hockey would bring the competing actors, of the NHL, IIHF and KHL together in an economic endeavor. This would incentivize the parties to work together and build stronger relationships. Second, the creation of a Hockey Arbitral Tribunal will provide a structure and systemized approach to the player transfer issues. HAT would have the power to levy economic sanctions against leagues that fail to adhere to the judgments of the tribunal. These sanctions will be substantially more effective than the current sanctions, which disproportionately harm the player. Third, the implementation of a modified third-party investor model will allow struggling leagues to pay higher salaries to their top players. This will benefit the struggling leagues and the players who will have more time to develop, as well as aid the top-level leagues, which will eventually receive more highly skilled and developed players.

The ultimate goal of the three part solution is to address: the political strain between the leagues, the inconsistencies in international player transfers, and provide a means to grow the sport around the world. The complexities of these issues will not be solved easily. However, hockey, more than any other sport has the psyche to take on and overcome these issues. This great sport will thrive in the future, as long as all political actors recognize the importance of creating a world game, and not one that is reserved to a select number of passionate countries. 

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Author

Ryan Lake

Ryan Lake

Ryan is an American attorney at Lake Law Group, LLC and a sports consultant at Beyond the Playbook. He works extensively on ice hockey, soccer, baseball, basketball and Olympic movement issues. Ryan is also an Adjunct Professor at St. John’s University School of Law.

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