Why football transfers should be conditional to a payment

Published 27 January 2014 By: Ariel Reck

Argentine Football Team 2014

According the FIFA, Argentine players are second or first most transferred players at international level (see T.M.S. Global Transfer Market Report, 2012), depending on the year the statistic is measured (Brazil is the other top nationality), hence any issue related to a player's transfer is of concern.

"The" issue for the selling club in any transfer is how to secure payments from the buyer. In the current scenario, unlike the 90´s, it is almost impossible to close a deal including a single and in advance payment or bank guarantees. In that “pre contractual stability” age, when the notion of federative rights was still in force, clubs often included a clause stating that in case of non-payment of the transfer amount, the player was obliged to return to his former club

Today, clubs are well aware that such clauses are unenforceable. In addition to that, buying clubs know that a claim in front of FIFA Player's Status Committee for outstanding transfer amounts could last up to 3 years (throw in a 4th year for a CAS appeal and some additional months at the Disciplinary Commission to enforce the decision). At a 5% annual interest rate, there are no cheaper financial options in the market. Sometimes the buyer even manages to transfer the player to a third club before paying for the original transfer. The practice of abusing FIFA procedures is called "the FIFA loan"1.

Abuse is more condemnable when one considers that the funding is provided at such a low rate is (unwillingly) by the selling club, usually smaller and poorer than its counterpart. This creates an imbalance not only for the seller, obliged to seek for the money elsewhere (at a higher rate), but also for the buyer´s competitors, since the club in arrears gains an unfair advantage.


How can a selling club protect itself from these debtors?

As seen in the Besiktas v UEFA CAS award, licensing regulations provide a remedy against transfer payments' overdue, but it is -for now- limited to debtors playing at UEFA level.

Imposition of penalties is another possibility as deterrence, but these are not easy to include in a transfer contract since the bargaining power of the selling club is usually weak compared to the buyer. And when the seller manages to include them in the agreement FIFA is reluctant to impose these penalties. Two recent CAS awards however, will probably change FIFA's position or at least show that such criterion can be successfully challenged in a subsequent appeal2.

As mentioned above, is not valid to oblige a player to return to his previous club against his will just because the transfer amount is outstanding. At the moment both clubs complete the transfer, the previous employment contract is terminated and a new one (with the new club) enters in force.


Can a selling club make a transfer conditional to payment?

A recent and much publicized FIFA decision suggests it is not possible. The case was related to the imposition of a heavy disciplinary fine by FIFA to Argentine club Independiente and Italian side Genoa for misuse of the TMS (Transfer Matching System). These clubs included in a transfer agreement a clause stating that Independiente was allowed to withdraw from the transfer in case of non-payment by Genoa of the first agreed installment and that Independiente was only obliged to release the ITC after receiving such initial payment. Genoa uploaded the deal in the TMS system but didn´t pay the initial amount, hence after a warning, Independiente sent a communication to Genoa withdrawing from the transfer. When FIFA asked Independiente to enter the counter-order it in the TMS system, the Argentine side informed the transfer was withdrawn. For FIFA, this was a violation of art.9.1 FIFA RSTP3  and a TMS misuse. But one should consider if Independiente was imposing a condition on the ITC issuance or was the club conditioning the entire transfer deal to that first payment?

The rationale behind art.9.1 of the FIFA RSTP is clear. After the introduction of the contractual stability principle, many clubs withheld the player´s ITC, asking for an "issuance fee" (especially in cases of free agents), as an abusive substitute for a transfer compensation. However, making the whole transfer deal conditional to a first payment is something different and doesn't seem to be abusive. When a club transfers a player it needs the money, either to replace the player or to use the funds for other needs. To make the transfer conditional to the payment of its price is nothing more than the application of the "exceptio non adimpleti contractus” or the right to withhold performance.

As top Brazilian colleague and friend Daniel Cravo perfectly questioned in his presentation in the recent football law Congress in Madrid : Why can a club make a transfer conditional to a medical exam or to a determinate price, why can a club even decide not to sell a player at all, but a transfer cannot be made conditional to a first payment? Moreover, as he points out, art.9.1 FIFA RSTP appears to be directed towards national associations not clubs.

In particular, in Argentina, the first payment of any transfer is crucial because according to national labor and fiscal rules, the taxes and levies of the transfer (amounting 25,5% of its price) are to be paid entirely before the ITC release, even if the total payment is agreed in installments. In case of non-payment of these contributions before the ITC release, the club and the national association are jointly liable for these amounts and can be subject to penalties and sanctions.

"Exceptio non adimpleti contractus” is recognized in Swiss law and hence of mandatory consideration for any FIFA ruling. There are a few CAS precedents addressing the issue as obiter, directly or indirectly admitting the right of a club to withhold performance in a transfer, in case of noncompliance by its counterpart4.

Probably the most important precedent in this sense is an old case (way before the TMS era) CAS 2004/A/572 Arsenal Football Club / RCD Espanyol de Barcelona SAD. In it, CAS confirmed that a club was allowed to legitimately withdraw from a transfer contract due to its counterpart´s non-performance. A few paragraphs of the award are the best summary of this position:

76. In order to determine whether the Respondent was entitled to withdraw from the Contract, it must be examined whether the conditions of Art. 102, 107 and 108 CO were satisfied, i.e. whether the Appellant was in default in a bilateral contract (Art. 102 CO), and whether the Respondent set the Appellant a time limit before waiving performance (Art. 107 CO); or whether one of the conditions of Art. 108 CO was met and the Respondent was not required to fix a time limit for subsequent performance to the Appellant.

77. The first requirement for a lawful withdrawal from a contract is the default of the obligor. In order to determine this, and according to Art. 102 (1) CO, the Respondent is required to have reminded the Appellant that the fulfilment of his obligation was due.

88. The Respondent repeatedly asked for performance, receiving constantly the same response by the Appellant. The Respondent was entitled to assume that the behaviour of the Appellant indicated that the setting of a time limit would be in vain. It must also be kept in mind that the action taken by the Respondent as a result of the Appellant’s behaviour, the withdrawal from the Contract, had repeatedly been threatened by the Appellant itself and can thus not be seen by the Appellant as an unexpected consequence.

89. In view of the aforementioned facts and the cited jurisprudence, the Panel holds that the Respondent was entitled under the Art. 102, Art. 107 and Art. 108 (1) CO to withdraw from the Contract. As the Respondent was not in breach of contract, no compensation is due to the Appellant.

Therefore I believe FIFA needs to differentiate an abusive and extortive practice, the ITC withholding, from a legitimate application of the right to withhold performance, making a transfer conditional to a payment.

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Ariel Reck

Ariel Reck

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.

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