What is a “bridge transfer” in football
Published 30 April 2014 By: Ariel Reck
Last month FIFA issued a decision sanctioning for the first time clubs for so-called “bridge transfers”1. Hence, the aim of this blog is to explain what a bridge transfer is and why it is used in professional football.
In its press release FIFA defined: “In general, bridge transfers involve clubs collaborating to transfer players through a ´bridge´ club to a destination club where the player was never fielded by the bridge club”
To conduct a bridge transfer is to interpose a third club in the pathway of a regular transfer to achieve other objectives apart from the transfer itself. So, what are these “other objectives” that can be achieved via a bridge club?
Bridge Club as a “safe harbor” for economic rights
The main reason for use of these clubs is they are a way to “anchor” economic rights to a club instead of a mere private company, gaining access to the “federative world”.
A mere economic rights holder has no saying before FIFA. Any attempt to revert to FIFA will be immediately rejected by the governing body. The best a third party owner (“TPO”) fund can agree is CAS jurisdiction, but since the modification of art.64 of the FIFA disciplinary code2 in 20113, no disciplinary procedure can be opened in case of non-compliance with an ordinary CAS award4.
On the flip side, a club has all the prerogatives of being a member of the “FIFA family”, including the most important one, the possibility to report any fault to the FIFA jurisdictional and disciplinary bodies and to obtain disciplinary measures (i.e. points deduction, relegation), which are far more deterrent for clubs than any execution enforced via ordinary courts.
Through these bridge clubs, TPO funds enjoy all the benefits of being a club. They can loan the player to a third club and force his return at the end, they can sign multi-year contracts with the player, anchoring him to the bridge club and if he breaches the contract, this will constitute a breach reached by art.17 of the FIFA Regulations on the Status and Transfer of Players (RSTP) subject to sporting sanctions and to the joint liability of the new club and not a mere breach of a civil contract.
Therefore, with UEFA´s attempt to ban TPO, we will probably see a rise in the use of bridge clubs, not only in South America, but also worldwide.
Bridge transfer as a way to reduce taxes or hide the final beneficiary of the amounts
A second “utility” of bridge clubs is the reduction of taxes otherwise applicable.
For transfer taxes, instead of conducting a direct transfer between club A and B, clubs will interpose a bridge club C and the real transfer price is divided between two different transfers (from A to C and from C to B). The transfer amounts are distributed depending on where the transfer would be subject to high taxation. For example in a 1 Million transfer, if the transfer is highly taxed in country A the distribution will be something like: transfer A to C 200.000, subsequent transfer C to B 800.000.
This move is also used to hide the final beneficiary of the amounts (be it the player, a TPO fund or an agent).
As to salary taxes the practice is used by many free agents: Imagine a free player targeted by a club. He wants a salary of 1 Million net. If all this is deemed to be salary, taxes can be really high. So, the free agent signs a contract with a bridge or “straw man” club and only afterwards the “final” club, the player and the “bridge” club sign a transfer agreement. The final club and the player agree on a lower salary, say 350.000 and the rest (650.000) is paid as transfer price, subject to a lower taxation. The final beneficiary of this amount will be the player.
That´s why bridge clubs are usually located in countries that don´t impose strong barriers or controls on the transfer (in and out) of money.
To avoid these kind of operations, Argentine Taxman passed a package of regulations designed to disclose the real owner of the economic rights, impose high withholding rates for payments to economic rights owners (up to 35%), and impose the same rates and even advance payments to what the Taxman calls “sporting tax heavens”, a list of bridge clubs usually used to perform these operations5. Also, the Taxman reached an agreement with FIFA to gain access to the data contained in the FIFA TMS6.
Bridge transfer as a way to reduce training compensation or solidarity mechanism
These transfers can also be used to reduce the training compensation amount the new club shall pay. A CAS case CAS 2009/A/1757 MTK Budapest v. FC Internazionale Milano S.p.A.7, award of 30 July 2009, shows how it works and how CAS dealt with the matter.
The Italian club Inter was interested in a player from MTK Budapest but no agreement was reached. So the player, still an amateur, decided to accept a first contract with a Maltese club, were he stayed only 9 days before being subsequently transferred to Inter Milan.
MTK Budapest claimed training compensation against Inter. The CAS panel decided to admit such claim. Since it was Inter that has benefited from the training efforts invested by MTK, it is Inter that should be obliged to pay a high training compensation amount, based on the Italian club´s category instead of the Maltese.
The panel found difficult to understand the player´s unusual pattern of movement: why a highly rated player who has captained the Hungarian under 19 team and who has attracted the attention of Inter Milan elected to move to a club in Malta and stayed there for little more than a week before moving on to Italy.
A similar operation can be set to reduce the solidarity mechanism if the bridge club is registered within the same federation as the final club. Only the first transfer (for a low amount) between the former club and the bridge club will be subject to the solidarity contribution, the subsequent transfer between the bridge club and the final club (for the real transfer amount) will be domestic and not subject to it.
Bridge clubs are a growing tendency worldwide and now not only small clubs are into these practices, even midsize and big clubs are into it. It´s like they have two different business areas, the “sporting” branch: competing in the tournament selling and buying players for the team, and the “financial” branch selling and buying only as mid-men for a fee (usually a percentage of the amount involved in the operation).
The hardest challenge FIFA will face is to prove the simulation. The described unusual pattern of movement is not always so obvious and sometimes the real purpose of the transfer becomes evident only after many years of consecutive loans.
Still, I believe the main question remains whether FIFA can actually sanction these operations, since no article in the regulations prohibits the transfer of a player for mere “economic reasons”, actually art.5.3 of the FIFA RSTP8 appears to allow or consent these bridge transfers.
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- Tags: Court of Arbitration for Sport (CAS) | FIFA | Football | Player Transfers | South America | Third Party Ownership | UEFA
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Ariel is a lawyer in Argentina focused exclusively on the sports sector, mainly the football industry. He has particular experience advising on third party player ownership issues, player´s transfers and international sports disputes before FIFA and CAS. He has also spoken at conferences on these issues in Argentina and at international level.