R.I.P. TPO: a guide to FIFA’s ban on third party ownership

Published 23 January 2015 By: Richard Berry

Football and Dollars

Born: c.1990s (Somewhere in deepest South America).

Died: 22 December 2014 (FIFA Headquarters, Zurich).

Stop all the clocks, cut off the telephone,
Prevent the dog from barking with a juicy bone,
Silence the pianos and with muffled drum
Bring out the coffin, let the mourners come.

Auden, Funeral Blues

 

22 December 2014. The day that FIFA finally killed third party ownership.1

Three months earlier, at its meeting on 25 and 26 September 2014, the FIFA Executive Committee2 passed a decision of general principle3 outlining its plan to ban the ownership of player’s economic rights by third parties (“TPO”).4

In the period since, a dedicated working group laboured to draft technical regulations to implement the ban.5

On 18 and 19 December, the FIFA Executive Committee approved new provisions6 to be included in the Regulations on the Status and Transfer of Players.7

TPO has been a hot and evocative topic for some time.8 It is now almost nine years since Carlos Tevez and Javier Mascherano brought their South American flair to the Premier League - leading to the much publicised dispute when they helped to keep West Ham in the Premier League and the subsequent knee jerk ban on TPO by the Premier League and the English FA.9

Described in characteristically understated style by PFA Chief Gordon Taylor as “like trading in human beings10 and by Premier league Chief Richard Scudamore as comparable to “indentured slavery”,11 TPO is already outlawed in England, France and Poland. The rest of the world has now been ordered to follow suit.

THE NEW REGULATIONS

The ban

New Article 18ter (1) provides that:

No club or player shall enter into an agreement with a third party whereby a third party is being entitled to participate, either in full or in part, in compensation payable in relation to the future transfer of a player from one club to another, or is being assigned any rights in relation to a future transfer or transfer compensation.”12

A “third party” is defined as any party other than the two clubs transferring a player from one to another, or any previous club, with which the player has been registered.

Transitional provisions

Agreements covered by 18ter (1) that predate 1 May 2015 may continue until their contractual expiration, though their duration may not be extended.13

New economic rights agreements may continue to be entered into until the end of April 2015; however, they may not have a contractual duration of more than one year.14

Registration requirement

New Article 18ter (5) provides that all existing agreements must be recorded within FIFA’s TMS system by the end of April 2015. This includes details of the third party involved, the name of the player and the duration of the agreement.15

Breach

New Article 18ter (6) provides that FIFA’s disciplinary committee may impose disciplinary measures on clubs and players that fail to observe the new obligations on TPO.16

National effect

The new regulation is included in the list of provisions that are binding at national level and must be included in regulations produced by national football associations.17 

THE CONSEQUENCES

Transitional provisions

The transitional provisions provide that existing agreements that predate 1 May 2015 may continue until their contractual expiry. However, many existing economic rights agreements (at least those that are well drafted) will have no fixed expiry date. It is more usual for an agreement to remain in force until a player is sold – at which point the third party interest will usually be extinguished and the agreement between selling club and investor will come to an end. The time between initial investment and the end of an economic rights agreement could be the space between two transfer windows or several years, depending on the performance of a player. It is not clear whether FIFA has considered this or not, but on the face of it the regulations appear to permit any agreement entered into prior to 1 January 2015 to run its natural course until the contract expires.

The requirement that any new economic rights agreements entered into between 1 January 2015 and the end of April must have duration of no more than one year will render the majority of such agreements unworkable and is unlikely to be heavily applied. It is simply too difficult to put a definitive end date on a TPO arrangement. The end date is, much like any other investment, generally determined by the optimum date for the club (and the associated investor) to cash out. Any new investment would effectively have to be realised in the next two transfer windows which is clearly a very short timeframe.

Effect on the Market

The effect of the ban on the global transfer market is hard to predict. Here in England, where a ban on TPO has been in force for some years, it is easy to assume that the new regulations will have little or no impact.

However, the English market is dependent upon a steady stream of foreign imports that have cut their teeth in Spain, Portugal and other leagues around Europe. Many of these players initially arrived in Europe from South America with the assistance of third party investment (think Sergio Aguero and Diego Costa). Without TPO, we may never have seen them in the Premier League.

UK Immigration rules mean that it is difficult for English teams to sign non-established international players (these rules are currently under review with a view to making them even tighter). For major non EU footballing powers like Brazil and Argentina, this means that there are numerous players of extremely high quality who are unable to play in England because they do not meet the international appearances requirement. Previously, such players were able to move initially to other European leagues (primarily Spain and Portugal) in order to develop their skills and market themselves to bigger clubs (often obtaining citizenship in those countries in the process). Many of these deals were accomplished through TPO that allowed smaller Portuguese and Spanish clubs to afford transfers which would otherwise be out of their reach.18 With the ban on TPO, I fear that the “mid market” Brazilian or Argentinean (and promising young players from these countries) will cease to be seen in England.

Under the previous regulatory regime, players were less likely to be transferred at a young age, as investors and clubs wanted to wait to see the player progress and, hopefully, become more valuable. With a TPO ban, there may be pressure on cash-poor clubs to sell their stars early, which will see many more teenagers traversing the world stage, arguably before they are physically and emotionally ready for the culture change and increased pressure in leagues such as England’s and Spain’s.

Many commentators have suggested that, following the ban, TPO will be forced “underground” and that this will lead to more widespread incidents of “bad” TPO with associated influence over clubs – exactly the type of behaviour that the ban is designed to prevent. However, I am not sure that, when considered alongside the aims of TPO, this argument holds water.

TPO is primarily used by clubs as a means to finance transfers or to provide much needed income where a team may not otherwise be economically viable. It is a legitimate source of revenue which is currently instrumental in allowing many clubs to comply with financial fair play requirements. When done professionally and transparently, TPO can have a significant positive impact on a club by allowing it to both retain its best performers (therefore remaining competitive) and remain economically viable (whilst complying with financial regulations) through a cash injection. Banning TPO will, of course, cut off this source of revenue.

It is too straightforward to say that clubs will simply find a way to continue with TPO behind closed doors. In order to do so while continuing to enjoy the financial benefits, a club would need to commit accounting fraud and breaches of respective FIFA and UEFA regulations to cover up its third party investment. There may be clubs who are prepared to go to these lengths, but I suspect that they are few and far between in the major professional leagues of Europe.

Potential alternatives

Rather than prohibition, a better course of action may have been to enforce and enhance the already existing FIFA regulation, Article 18bis, to ensure transparency and continue to give clubs access to the often-vital source of finance provided by TPO.

The ban smacks of over regulation, which may result in previously successful clubs who have made extensive use of TPO falling further behind the traditional powerhouse clubs who do not need to rely on such finance to acquire and maintain their players.

In addition, leagues such as Brazil’s may suffer financially and competitively while their best players will be moving abroad sooner, for less money and at an uncertain stage of their personal and professional development.

Unfortunately, these arguments are now defunct. It now remains to be seen whether the ban will, in practice, be workable and what it will mean for clubs who have for over a decade depended on TPO for their existence. Will a club, or even a league, seek to challenge FIFA?

 

Related Articles

Author

Richard Berry

Richard Berry

Richard is an associate in the Sports Group at City law firm Lewis Silkin LLP. An employment lawyer with particular expertise in contractual issues, disciplinary proceedings and regulatory matters.

  • This email address is being protected from spambots. You need JavaScript enabled to view it.