Football’s International Loan regulations: the ‘Wild West’?

Published 10 February 2015 | Authored by: Barry Lysaght

The international loan system has been described in some quarters as “the Wild West of football” with claims that clubs are taking advantage of “non-existent rules” raising fears of harm both to players’ careers and the integrity of the transfer market as a whole.1

There can be little doubt that the loan transfer is in vogue. The lucrative transfers of high-profile stars such as Radamel Falcao, Alvaro Negredo and Fernando Torres during the summer transfer window of 2014 – all on loan deals – suggest that big money transfers which would previously have been done as permanent deals are now taking the form of temporary arrangements. Indeed, a glance at the statistics shows that larger amounts are being spent on loan transfer fees worldwide than ever before, from USD $185m in 2011 to USD $475m in 2014, while the rate of players engaged on loan has remained level at an average of 13% of all transfers.2

This exponential increase in the value of international loan transfers raises important questions about the causes and consequences of this trend.

Some commentators point to the introduction by UEFA of Financial Fair Play (“FFP”) as the catalyst for the surge, speculating that more European clubs (the key drivers of global transfer trends) now opt to structure de-facto transfers as designated ‘loans’ for the purpose of managing their cash flow. It has been suggested that doing so allows the clubs involved to fall within acceptable FFP spending limits by timing their profits and losses across the 3 year period of assessment.3

Others have studied the transfer activities of clubs such as Chelsea FC, which is reported to have 27 of its players out on loan at the time of writing, and suggest that loans represent an innovative new income stream.4 By sending out young players on loan, the argument runs, clubs such as Chelsea are able to reduce their financial exposure (through agreements with the engaging club to either share or take over the payment of the player’s salary entirely, as well as paying a ‘loan transfer fee’ to Chelsea), while the values of their players mature through the increased game time they receive out on loan. Similarly, the prolific loan activity of Watford FC attracted media attention after the Hornets were reported to have brought in no less than ten players from its sister clubs Udinese, Italy and Granada, Spain on international loan during the 2012-2013 season.5

Others still take the pessimistic view expressed in the opening paragraph - namely that loans are used and abused by clubs to exploit “non-existent governance” and a lack of proper regulation at both national and international levels.

This article seeks to address this final point by illustrating the multiple regulations and technical safeguards implemented by FIFA to monitor and govern the international transfer of professional players on loan. The author is Integrity and Compliance Counsel, a member of the Integrity and Compliance Department at FIFA TMS.

 

FIFA TMS: a new departure

International transfers (including loans) of professional footballers are processed through the FIFA International Transfer Matching System (ITMS)6 in accordance with the FIFA Regulations on the Status and Transfer of Players (RSTP)7 – a ground-breaking technological and regulatory development that has revolutionised how such transfers are done.

In 2007, the 57th FIFA congress voted to create the ITMS online system for male 11 a-side international football transfers as one of the recommendations of the FIFA task force ‘For the Good of the Game.’ The objectives were to increase integrity and transparency in the market by increasing data available to football authorities on every transaction and to enforce rules on the protection of minors. In October 2010, the regulations relating to the use of ITMS were included in annexe 3 of the RSTP, making ITMS a mandatory step for all international transfers (both temporary (such as loans) and permanent) of professional male footballers through a secure, online and real-time system.8

 

A transfer by any other name…

The primary point to note when considering the FIFA Regulations is that loans are regulated in exactly the same way as permanent transfers and so must be processed through ITMS.

Art. 10.1 of the RSTP, for example, confirms that a professional may be loaned to another club on the basis of a written agreement between him and the clubs concerned, and that “(a)ny such loan is subject to the same rules as apply to the transfer of players, including the provisions on training compensation and the solidarity mechanism.” This requirement is explicitly reinforced by art. 8.3.1, annexe 3, which confirms that “(t)he rules set out above (i.e. those rules contained in the preceding articles of annexe 3, specifically art. 4.2 and art. 8.2) also apply to the loan of a professional player from a club affiliated to one association to a club affiliated to another association, as well as to his return from loan to his original club, if applicable”.

Furthermore, in contrast to permanent deals (where both amateurs and professionals may be transferred), only professional players can be transferred on a loan basis.9 The distinction between amateur and professional is set out at art. 2.2. This restriction of loans to professional players also means that the contracting parties must fulfil their obligations under art. 1.5, annexe 3, which states that the use of ITMS is a mandatory step for all international transfers of professional male players within the scope of eleven-a-side football. Loans, then, are for professionals – and the international transfer of professionals must be done through ITMS.

The legal implications for clubs seeking to engage a player internationally on loan, then, are clear. Art. 4.2 of annexe 3, sets out the compulsory information which the contracting clubs must disclose. These include:

  • contractual details (e.g. indication that the transfer is on a loan basis, start and end dates of the loan agreement, employment contract start and end dates, player’s total fixed remuneration including full details of whether one or both clubs have agreed to contribute to the player’s salary during the loan);
  • personal data (e.g. player name, nationality, date of birth); and
  • financial information (e.g. loan transfer fee, if any, including full details of any instalments; conditional payments; solidarity contribution; and training compensation).

Clubs are further obliged under Art. 4.3, annexe 3 to upload certain mandatory documents to support this information – listed under Art. 8.2.1, annexe 3 as the loan agreement, employment contract and a passport or other proof of identity, nationality and birth date. Once this is confirmed in ITMS, the releasing Association is requested to confirm the player’s details against their own registration records, to verify that he was in fact registered with them (Art. 5.2.1, annexe 3).

The numerous obligations on both clubs and associations are aimed at ensuring that international loan transfers are subject to the same high standards of transparency and accountability as permanent transfers.

Time, timing and transfer windows

Loan transfers are further regulated in terms of their timing and duration – and are, in certain aspects, regulated more stringently than permanent transfers.

The application of art. 6.1, for instance, requires that players being engaged may only be registered during one of the two annual registration periods (or “transfer windows”,10 as they are more colloquially known) fixed by the relevant association. The exception to this rule (which permits transfers outside the transfer window for players whose previous contract expired prior to the end of that window) applies exclusively to certain permanent transfers – meaning that the movement of players on loan is, by contrast, more restricted than permanent deals.

The FIFA Regulations limit the duration of contractual agreements in the context of a loan. For loan agreements, art. 10.2 asserts that the minimum loan period shall be the time between two registration periods – no shorter loan period is permitted. For its part, FIFA TMS assists with ensuring clarity on this issue by monitoring the compliance of associations with their obligation to enter their registration period dates into ITMS at least 12 months before they come into force (cf. art. 5.1.1, annexe 3)

Loan rules, then,form an integral part of the international regulatory landscape. Restrictions with regard to timing, duration, frequency, transparency and sporting integrity – with few if any exceptions to these obligations – show an area of the transfer market that is, in fact, considerably regulated. The Integrity and Compliance department of FIFA TMS scrutinises international player movement to ensure that loans and all loan-related movement are reflected correctly in ITMS, enforcing art. 8.3.1, annexe 3, just as it does with permanent transfers. This is not to say, however, that the regulation of loan transfers is uncompromisingly rigid in all aspects – an analysis of the contractual variations that loans may take demonstrates a regulatory framework of perhaps surprising flexibility.

 

Should I stay or should I go?

For the sake of argument, let us consider the fictitious case of mercurial South American striker Lysaghtinho who is currently on loan from AS Bleus, France to FC Reds, England. At the end of the loan agreement, the player and clubs will be faced with a number of different possibilities: will Lysaghtinho return to his original club, for instance, or do the parties wish to extend his stay on loan by some means? Regardless of the eventual decision, what is certain is that FC Reds and/or AS Bleus would need to take some steps in ITMS to reflect the new state of play.

The possible options are as follows:

a. The player returns to his original club at the end of the loan

Just as Lysaghtinho’s loan from AS Bleus to FC Reds was an international transfer, so must any corresponding return to AS Bleus be entered in ITMS. In this case, AS Bleus would process a “Return from Loan” instruction in ITMS, while FC Reds would not need to do anything in ITMS. As a consequence, the International Transfer Certificate (“ITC”) for the loan player must be requested in ITMS by the FFF (French FA) on the last day of the French registration period at the very latest (art. 8.1.2, annexe 3).

The requirement for an ITC in ‘Return from Loan’ transfers highlights how important it is that the contracting clubs take care when fixing the end date of the loan agreement, so as to ensure that it falls during another open registration period – any later and the transfer window will be shut. The result will be that the player will be effectively stranded, unable to return back to his original club and will need to wait until the next registration period opens.

In our work at the Integrity and Compliance department of FIFA TMS, we monitor all transfer activity and pay particular attention to the instructions entered (or not, as the case may be) at the end of the loan agreement. Whether due to poor planning or a failure to comprehend the Regulations, some clubs have made the mistake of transferring a player back to his original club at the end of the loan without reflecting this international transfer in TMS. This is a serious breach of art. 8.3.1, annexe 3, which requires that the return of the player from loan to the original club must be processed through ITMS according to the normal procedures.

Sanctions imposed by the FIFA Disciplinary Committee for failure to process a Return from Loan in ITMS have included a fine of CHF 22,000 against the club in question, with the association involved also being fined CHF 22,000 for registering a player who had been transferred invalidly without an ITC (art. 8.1.1, annexe 3).

b. The loan agreement is extended

In this example, both FC Reds and AS Bleus agree to the extension of the original loan agreement to allow Lysaghtinho to stay at FC Reds for a longer period of time. In this instance, both clubs must declare matching information to confirm this by entering a ‘Loan Extension’ instruction in ITMS. In this way, they fulfil the requirements of art. 8.3.3, annexe 3 which stipulate that “Loan extensions… shall also be entered in TMS at the appropriate time”.

As the player’s registration is already with The FA in England, however, there will be no movement of the ITC in a loan extension. Accordingly, such transfer instructions can be validly processed outside of the English registration period if necessary and are not bound by the rule in art. 6.1. This is an important distinction to be drawn in contrast to the ‘Return from Loan’, which can only proceed during an open transfer window.

As with permanent transfers, any payments made between the clubs for a loan extension must be reflected in TMS (art. 4.2, annexe 3) - and with almost USD $58m spent in transfer fees for this type of deal since 2012, loan extensions certainly represent big business.11

c. The player’s loan is converted to a permanent transfer

If FC Reds were to engage Lysaghtinho on a permanent basis at the end of his loan from AS Bleus, both clubs would need to enter matching instructions in ITMS to give effect to art. 8.3.3, annexe 3 (“…permanent transfers resulting from loans shall also be entered in TMS at the appropriate time”).

In similar fashion to the ‘Loan Extension’, a ‘Loan to Permanent’ instruction reflects a change in the contractual agreement between the two clubs which must be reflected in ITMS – but as the player’s registration will remain with The FA in England, no movement of the ITC will take place. Accordingly, a ‘Loan to Permanent’ can also be validly done outside the registration period without infringing the rule in art. 6.1.

Clubs have spent vast sums in the international transfer market to secure their loan signings on permanent deals, with over USD $450m changing hands for such transfers since 2010 worldwide.

d. Sub-Loans

To continue with our example of the much-travelled Lysaghtinho, let’s consider the question of the ‘sub-loan’. This is the term given to the player’s transfer on loan from FC Reds to some third club (for the sake of this discussion, let’s say that Lysaghtinho’s exploits have caught the eye of Seagulls United, Ireland). So, in this case, we have Lysaghtinho – who is on loan from AS Bleus to FC Reds (the “loan”) – transferred on loan from FC Reds to Seagulls United (the “sub-loan”).

Naturally, the dates of the sub-loan must fall within the dates of the loan, as FC Reds would not be entitled to contract for anything beyond that. However, other broader regulatory obligations also apply.

Firstly, Art. 10.3 requires that – prior to any sub-loan of Lysaghtinho to Seagulls United being allowed to proceed - FC Reds must first get the written authorisation of AS Bleus, as well as Lysaghtinho himself. In this way, the contractual interests of AS Bleus – the player’s original club – are safeguarded.

Secondly, even with this written authorisation secured, the sub-loan could only take place during an open registration period of the Football Association of Ireland (“FAI”) (art. 5.1, art. 6.1). This is yet another affirmation of the rule in art. 8.3.1, annexe 3, as well as art. 10.1, confirming that the rules governing permanent transfers also apply to international loans.

Thirdly, FC Reds would need to ensure that the end date of the sub-loan falls during an open registration period of The FA so that, when the sub-loan agreement ends, they are able to proceed with the Return from Loan instruction in ITMS as required by art. 8.3.1, annexe 3.

For AS Bleus to bring Lysaghtinho back from his sub-loan at Seagulls United, a two-step process would be required. Firstly, as the sub-loan was conducted between Seagulls United and FC Reds in ITMS, FC Reds would have to enter a ‘Return from Loan’ instruction in ITMS and proceed as outlined in section (a) above. The FAI would deliver the player’s ITC back to The FA through ITMS, in accordance with art. 8.2.4, annexe 3. Secondly, then, AS Bleus would subsequently enter a Return from Loan in ITMS to bring the player back from FC Reds, with the FFF in turn requesting the ITC from The FA. It is therefore paramount that the sub-loan end date falls during an open transfer window for England (so Lysaghtinho’s registration can be returned from Ireland to England) and equally that the loan end date falls during an open transfer window for France (so England can return his registration to the FFF).

Finally, the application of art. 5.3 would also need to be taken into account to ensure that the player did not play in official matches for more than two clubs during one season.

e. The player will neither return to his former club nor remain at the present club

Acknowledging the dynamics of a market as variable as the transfer of players, FIFA TMS also assists clubs in reflecting what are sometimes referred to as ‘onward transfers’ after the end of the loan and the employment agreement. In our example, this would take the form of Lysaghtinho being transferred permanently to Seagulls United from FC Reds at the end of his loan from AS Bleus. This was a simplification measure designed to facilitate the onward movement of players while continuing to safeguard transparency and the rights of the player’s original club.

If, and only if, (a) the loan is at an end, (b) the employment contract is at an end and (c) AS Bleus no longer want Lysaghtinho, then they should opt to confirm the conclusion of the loan in ITMS. FC Reds, in that instance, would not be required to enter anything further. Lysaghtinho’s registration would, however, remain in England with The FA. Any subsequent international transfer of the player in ITMS would therefore require the new association (in this case, the FAI) to request the ITC from the English FA, rather than the French FA.

Should AS Bleus fail to confirm conclusion of the loan after the above conditions are met, it will still be possible for the player to be engaged by Seagulls United through ITMS. In that case, Seagulls United would enter an instruction to Engage the Player Out of Contract, after which the FAI would request the ITC from The FA. At this point, thanks to an innovative ‘warning system’ in ITMS, AS Bleus would be asked to confirm whether or not it agrees with the transfer of Lysaghtinho to Seagulls United. This is to help safeguard any contractual rights which AS Bleus may have.

If AS Bleus agrees, the original loan between AS Bleus and FC Reds will be concluded in ITMS. Should AS Bleus disagree, however, it can upload a written statement supporting its position. This statement will be shared with all parties involved in the transfer between FC Reds and Seagulls United. The FA and the FAI will be advised to review the written statement from AS Bleus, while FC Reds and Seagulls United would have the opportunity to contact AS Bleus to reach an agreement.

In either case, however, the transfer of Lysaghtinho to Seagulls United would not be prevented from proceeding (doubtlessly to much rejoicing at Seagull Stadium): The FA could still deliver the ITC to the FAI, though it would first receive one final notification in ITMS of AS Bleus’s disagreement. Any contractual dispute potentially arising from any such transfer would be dealt with by the FIFA Players’ Status and Governance Dispute Resolution Committee.

 

Conclusion

Far from being the ‘Wild West’, then, the international loans market is in fact subject to a clearly codified set of rules which regulate contract length, transfer timing and registration frequency – all processed in real-time through a sophisticated and secure online system aimed at maximizing transparency while safeguarding both the contractual and career interests of clubs and players alike. Critics may point to the proliferation of loan transfers in the case of clubs like Chelsea as evidence of a regulatory vacuum and, while there is currently no limit at international level on the number of loans that a club can do per se, there is an increasing convergence and alignment between national and international regulations.

The English Football League, for instance, recently voted to bring its rules governing international loan regulations in line with its domestic rules, limiting the number of loan players to 8 per club in any given season (including a maximum of 5 players loaned from overseas).12 At the level of international governance, meanwhile, art. 1.1 of the RSTP makes it clear that that the rules governing international transfers are both ’global and binding’.

Therefore, while multiple club ownership and freedom of contract for clubs and players may see the continued emergence of certain patterns such as Watford’s or Chelsea’s, the international loan market remains one that is considerably regulated and constantly adapting to meet changing realities. By investigating breaches, enforcing the regulations and providing innovative, real-time technical solutions to maximise transparency, FIFA TMS plays the role of the sheriff to this supposedly ‘Wild West’, ensuring respect for law and order amongst all ‘loan rangers’.

 

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About the Author

Barry Lysaght

Barry Lysaght

Barry Lysaght is Integrity and Compliance Counsel for FIFA TMS GmbH.

Admitted to the Roll of Solicitors of Ireland, Barry also holds qualifications in Sports Law and European Human Rights Law. Barry’s previous professional experience includes sports governance, regulatory and disciplinary matters, litigation and refugee and asylum seeker law.

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