Third party ownership of players in Argentina
Published 14 March 2013 By: Daniel Geey
Recently there have been reports that the Argentinean government has implemented a tax law that effectively prohibits third party ownership (TPO) of football players. After getting in touch with the esteemed football lawyer Ariel Reck in Argentina, we decided to write a short blog about the consequences for the Argentinean football industry of this law coming into force and whether it has the teeth to actually stop TPO. Ariel comments on the recent developments in Argentina and I set out the basics and consequences for the global TPO market. For readers new to the concept of TPO, I set out below a brief summary below.
The Basics: What is Third Party Player Ownership?
TPO 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.
Developments in Argentina
It has been reported that Argentina has banned TPO. This is not quite an accurate reflection of the circumstances however. This is because the regulations only relate to taxation. The rationale for the additional legislation is because TPO owners in Argentina have been traditionally hard to identify and usually use off shore companies. In some cases, monies made cannot be taxed properly. As such the government passed in 2012 and in the beginning of 2013 a series of new regulations, which basically:
- oblige all clubs and the Argentinean Football Federation to disclose and regularly inform and update the authorities in relation to the TPO agreements clubs enter into with its registered players;
- imposes tougher obligations and more expensive rates in cases of transfers involving so called “straw-man clubs” including a list of “sporting fiscal paradises” (mainly Uruguayan and Chilean clubs that according to the taxman are regularly used for hiding the final destination of a player and therefore the real value of the transfer);
- states that any transfer payment for a player (even in controversial cases like the direct payment to a player for his own economic rights as a free agent) must go to the former club and only afterwards (after a withholding of income tax ranging from 17.5% to 35% is applied) the TPO owner will get his share provided by the club. If the TPO is prompt with his payment the withholding rate will be 17.5% rather than 35%.
In this context the head of Argentinean revenue has declared that his final intention is to abolish the differentiation between federative (i.e. the club registration of a player) and economic rights which would purport to reestablish the balance between the bargaining power of clubs and private third party investors. This implies that only clubs will be allowed in the future to own player rights. But in a practical sense, it is unlikely this will happen as TPO is the main financial source for football clubs in Argentina. It is therefore believed that this statement is more geared towards demonstrating to the public, that that the government is willing to implement laws to fight against non-declaration of taxable income rather than actually outlawing TPO.
With the Premier League, Football League, Football Association and Ligue 1 in France all implementing regulations to prohibit TPO in their leagues, there appears to be a growing tide of opinion against TPO. As recently as late last year UEFA’s Executive Committee appeared to be moving towards some kind of ban too (see my December blog for the detail and listen to my latest podcast on this very topic). That combined with a FIFA communication stressing the need to more effectively deal with TPO in the global game, suggests that governing bodies are developing an approach to regulate TPO. Indeed the European Club Association is very much sat on the fence at the moment with some clubs like Porto strongly in favour of TPO. The degree to which certain federations have an appetite to deal with TPO and how quickly such regulations could be put in place still however remains to be seen.
Ariel Reck and Daniel Geey
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Daniel is a Partner in the Sport Group.
Daniel’s practice focuses on helping clients in the sports sector, including rights holders, leagues, governing bodies, clubs, agencies, athletes, sports technology companies, broadcasters and financial institutions.