Unilateral extension options in football contracts: Are they valid and enforceable?Tiran Gunawardena
Unilateral extension clauses (UECs) are contractual clauses that give one party to a contract the exclusive right to extend the employment relationship with the other party. Unlike reciprocal clauses - where both parties need to agree to the extension - UECs do not require both parties to consent to activating the clause. In the context of football, we often see UECs in favour of football clubs in employment contracts between players and clubs.
This article examines:
where and how UECs are used in football;
why they have proved to be controversial; and
what jurisprudence at the Court of Arbitration for Sport (CAS) has said about the legality of such clauses.
The article will conclude by briefly contemplating whether, and how, UECs could be regulated going forward.
Where and how are UECs used in football?
UECs are sometimes used by football clubs in Europe and South America and the attraction of these clauses (at least from the perspective of clubs) is that clubs can take a risk in signing a player to a short term contract, but also have the option of securing the player for a longer period if he turns out to be a success. In that context, UECs are particularly valuable for clubs when dealing with young players. After the Bosman case, clubs have increasingly attempted to use UECs to prevent players from leaving their clubs for free at the end of their contracts.1
In the UK, where the author is based, UECs are often used in young players’ contracts, even in the Premier League but especially in leagues below the Premier League. It is noteworthy that, like in many other countries around the world, there are standard contracts in England which have been negotiated between the league(s) and the players’ association and most of these standard contracts do not have UECs as standard clauses. However, certain clubs insist on inserting them, which may well prove to be in violation of the collective bargaining agreement in that country.
Many of these UECs provide for little to no pay increases and so are greatly in favour of clubs. Whilst one might question why players sign contracts which contain UECs so strongly in favour of clubs, it is often the case that these young players have very little (or almost zero) bargaining power given the intensely competitive nature of professional football.
Some players may consider the UEC option year(s) as potential future income, which understandably could be seen as valuable in a highly unpredictable industry. However, in reality, if the player does well and the UEC is triggered, he’s likely going to be underpaid during those option years. Conversely, if he does badly (and/or is injured), the club likely would not trigger the UEC and he wouldn’t get those extra years of income from the option years. Accordingly, it appears that the only realistic scenario where a player would be happy with a club triggering a UEC is if his value does not change at all between the original contract and during the option year(s). So it is difficult to see any significant upside in UECs for players – especially young ones.
Sometimes clubs do take the decision to offer the player a new contract on improved terms (instead of triggering the UEC in the old contract) if the player does better than anticipated, however that decision is not all that common, at the sole discretion of the club, and may be motivated by a desire to increase the player’s transfer value rather than to remunerate him fairly (albeit leading to the same outcome).
In the author’s opinion, a further problematic element of UECs is the fact that many players (and likely some intermediaries too) may not truly understand what a UEC is, i.e. that it allows a club to unilaterally extend the contract on pre-agreed terms no matter how well the player has played, and irrespective of whether he wishes to remain at the club. In practice, young players often do not take legal advice before signing a contract, so they (and their lawyers) are left to argue later down the line before a tribunal2 that the UEC should be void as the player did not understand the true implications of the contract he signed – which can be a difficult hurdle to overcome. If the player does take independent legal advice before signing the contract (and enters into it freely), then the author considers it more likely that the UEC would be deemed enforceable.
UECs are also very common in the US.3 Major League Soccer (MLS) standard player contracts (and incidentally also National Women’s Soccer League (NWSL) standard contracts) include up to 3 UECs for no more than 3 years in total.4 These UECs are often greatly in favour of the MLS.5 These UECs have been challenged by some international players/clubs in practice, although not at FIFA/the CAS as those players/foreign clubs and the MLS ultimately came to a transfer or settlement agreement before any legal proceedings.6
Why are UEC’s a point of controversy?
UECs have proved to be controversial for a few reasons.
Firstly, the very nature of UECs have proven to be controversial because, as outlined above, they are almost always in favour of clubs. Moreover, whilst football is a unique industry, it is difficult to fathom UECs being permissible in a ‘normal’ employment law context and employers being able to unilaterally extend employment relationships with employees without their agreement. Despite this, UECs can, in fact, be valid in football under certain conditions which will be explained further below.
Secondly, the legality and enforceability of UECs varies from one jurisdiction to the next, and the position is far from settled. A detailed analysis of various jurisdictions would be a lengthy exercise and is outside the scope of this article. The author will instead focus on the validity of UECs at an international level through the lens of the CAS by an analysis of CAS jurisprudence. For the purposes of this article, it would be sufficient to simply note that the applicable law can be an important factor in determining whether a UEC is valid or not.
Thirdly, on an international level, the FIFA Regulations on the Status and Transfer of Players (RSTP) is silent on the legality of UECs, so we are left to look at CAS jurisprudence for guidance. Whilst there has been some jurisprudence on this issue at the CAS (outlined below), it’s important to note that CAS panels are not bound by prior jurisprudence (there is no principle of ‘ stare decisis’ ), so in practice, the validity of UECs are very much determined on a case by case basis. Moreover, if the UEC is being examined by a CAS panel, it is likely that Swiss law would be applied (to fill the lacuna that exists given that the FIFA RSTP is silent on UECs), as opposed to the law of the contract. All of this only adds to the general uncertainty around UECs.
CAS jurisprudence on unilateral options
There have been a few published cases at the CAS regarding UECs, and they have been analysed below in chronological order.
Apollon Kalamarias FC v Oliveira Morais7
In this case, the player signed an initial 1 year contract with the club, but the club had a unilateral right to renew the contract annually for up to 4 more years (i.e. a 1+4 deal). The club only had to give the player notice within 5 days of the Greek summer transfer window every year.
In May 2004, the club tried to exercise its first one-year option, and informed the player that he would be receiving the same wages as in the prior year. The player declined, and filed a claim at FIFA challenging the validity of the unilateral renewal. The FIFA Dispute Resolution Chamber (“DRC”) found in favour of the player, ruling that the contract was deemed to be terminated after 1 year. The FIFA DRC stated that unilateral options were “in general, problematic, since they limit the freedom of the party that cannot make use of the option in an excessive manner. Furthermore, such options are not based on reciprocity, since the right to extend a contract is left exclusively at the discretion of one party.”
At the CAS, the panel upheld the FIFA DRC’s decision. In coming to their decision, the Panel took into account, inter alia , that there was inequality of bargaining power between the club and player, all the advantages of the UEC were in favour of the club, the financial terms of the UEC took no account of the possible enhancement of the player’s value over the 5 year period and that 5 years is significant portion of a footballer’s active career.
Panathinaikos FC v Sotirios Kyrgiakos8
In this case, a player signed an employment contract for an initial period of 2 years, with 2 further unilateral options granting Panathinaikos the right to extend the contract. The first option was for an additional 2 years, and the second option was for a further 1 year (i.e. a 2+2+1 deal). The employment contract was subject to Greek law.
The first option for a period of 2 years was exercised by Panathinaikos, without the player’s objection. During that 2 year option period, the player was out on loan at Rangers Football Club. When Rangers and Panathinaikos could not agree on the permanent transfer of the player after the loan period, the player was asked by Panathinaikos to return to the club. The club also notified the player that it had exercised the second option it held, to extend the employment agreement by a further 1 year. The player however, wrote to the club stating that he was not willing to renew the employment agreement and that he considered it invalid. A complaint was filed at FIFA, which decided in favour of the player, ruling that the second option was invalid.
On appeal at the CAS, the panel noted that whilst CAS and FIFA jurisprudence tended to question the validity of UECs, “no jurisprudence known by the Panel declares such options as absolutely void under all circumstances. ”9 Each case had to be determined on a case by case basis.
The panel first looked at the issue of the total length of the employment contract and decided that contrary to FIFA’s decision, the total length of 5 years was not, in and of itself, a reason to invalidate the option(s) as a contract for 5 years was permitted under the FIFA RSTP.
The panel then looked at the benefits provided to the player under the 2 options, and noted that the first option raised the player’s salary (by 25%) and bonus (by 66.6%) as did the second option (both salary and bonus by 100%). Given these increases, the panel did not believe that Panathinaikos had “unequal bargaining power” or that the player had no apparent gain from the options.
Interestingly, it was discovered that the player had received a more lucrative offer from Rangers than he would have earned under the second option with Panathinaikos. The Panel took this into account and concluded that this was, in fact, the reason he decided to terminate his employment contract with Panathinaikos. The panel concluded that the player “decided to escape his obligations by artificially claiming the nullity of the unilateral option” and this action was not “bona fide” and violated the principle of “pacta sunt servanda”. Thus, it was “irrelevant” that the player could have received a higher salary elsewhere than at Panathinaikos.
In conclusion, the CAS panel determined that the unilateral options were valid, meaning the player breached his employment agreement without just cause by leaving Panathinaikos and was ordered to pay the club damages.
Club Atlético Peñarol v Carlos Heber Bueno Suarez, Cristian Gabriel Rodriguez Barrotti & Paris Saint-Germain10
In this case, Carlos Bueno and Cristian Rodriguez (two Uruguayan professional footballers) were seeking to sign new contracts with Club Atlético Peñarol. At the time, there was a Uruguayan Football Player’s Statute (“UFPS”) in force that, in essence, allowed clubs to unilaterally extend a player’s contract for an additional 2 seasons (or even two and a half years in certain circumstances). Moreover, the club only had to increase the player’s wage in accordance with the national Consumer Price Index, but had no other obligations to provide any better conditions to the player. If the player refused to accept the unilateral extension, the club was entitled to list him as ‘rebellious’ and could stop paying him. The player would only be free to leave the club when the ‘rebellion’ period ended, i.e. when the contract (along with the UECs allowed by the UFPS) expired.11
When Bueno and Rodriguez refused to agree to the club’s proposed renewal of their contracts, the club listed them as ‘rebellious’ and was thus exempted from paying them pursuant to the UFPS. After a period of 4 months of not playing (or being paid), the players signed for Paris Saint-Germain. Club Atlético Peñarol filed a claim against the players and the French club at FIFA, who rejected the Uruguayan club’s claim, and an appeal was filed at the CAS.
The CAS case provided interesting guidance on the precedence of international regulations (such as the FIFA RSTP) over national laws. Whilst a detailed analysis of that legal discussion is outside the scope of this article, for the context of this article it is important to note that the panel stated the following12:
“The Panel considers that sport is naturally a transnational phenomenon. It is not only desirable but indispensable that regulations referred to the sport at an international level have a uniform and coherent worldwide character. In order to ensure a respect at a worldwide level, such a regulation should not be applicable in a different way from one country to another, due to interferences established by a State Law or a Sporting regulation. The principle of the universality of the application of the FIFA regulations - or of any other international federation - is a need for the legal rationality, security and predictability. All the members of the football family are therefore under the same regulations, which are published. The uniformity that comes from it tends to assure the equality of treatment between all the addressees of such regulations, independently of the countries from which they are…”
In brief summary, the panel concluded that the UECs in this case were invalid, as it allowed Club Atlético Peñarol to unilaterally extend the players’ contracts without any additional benefits to the players. The disproportionate nature of the clauses were contrary to contractual law, and the spirit of the FIFA RSTP and Swiss law (even if it was not expressly prohibited by those rules/laws).
This was a landmark case in the context of UECs, not only due to its outcome and the subsequent impact it had on South American football (so much so the case was referred to as the South American Bosman13 ), but also because this was the case in which the ‘Portmann criteria’ was first introduced.
The Portmann criteria was submitted as a part of a report by Professor Wolfgang Portmann by Club Atlético Peñarol, and in short, it stated that UECs could be valid under Swiss law if the following conditions were satisfied:
The potential maximum duration of the employment relationship must not be excessive;
The UEC has to be exercised within an acceptable deadline before the expiry of the current contract;
The original contract has to define the salary raise triggered by the UEC;
The content of the contract must not result in putting one party at the mercy of the other; and
The UEC has to be clearly emphasized in the original contract so that the player can have full consciousness of it at the moment of signing.
The report by Prof. Portmann did not ultimately help Club Atlético Peñarol in this case (as the UECs did not sufficiently satisfy the criteria), which, in the author’s opinion, makes it all the more peculiar that the Portmann criteria ultimately gained such prominence in this area. That said, as outlined below, the application of the Portmann criteria by the CAS in the years since this case has been somewhat mixed.
Club Atletico Boca Juniors v Genoa Cricket and Football Club S.p.A.14
This case involved a minor aged 15 who entered into a contract with Boca Juniors. The initial term was for 1 year, but Boca Juniors had the option to extend the term twice, for a year each time (i.e. 1+1+1 deal).
Whilst the CAS panel in this case ultimately did not rule on the validity or lack thereof of the UEC in this case (as it was not directly relevant to the appeal15) it was interesting to note the panel’s comments on the Portmann criteria.
The CAS panel noted that the Single Judge of the FIFA DRC placed considerable weight on the Portmann criteria when deciding whether the UEC in this case was valid. The Panel, while agreeing with the ultimate decision, did not agree with this reasoning and stated that it was “not prepared to give the [Portmann criteria] such weight. Indeed, the Panel has great difficulty in following Dr Portmann’s reasoning, and in accepting the validity and enforceability of a unilateral option.”16
Gremio Foot-ball Porto Alegrense v. Maxi Lopez17
In this case, the player signed a ten month contract with Gremio, but the contract had an additional clause which “entitled” the club to enter into a 3 year employment agreement with him if they paid him a pre-agreed amount of money. The club later tried to pay the player the money to activate the extension clause, but the player refused to accept the payment.
Gremio filed a claim at FIFA claiming that the player had breached the contract by failing to sign a 3 year contract with the club as agreed. The FIFA DRC sided with the player and the club appealed to the CAS.
At the CAS, the club argued that the clause in the contract was “a promise” rather than a UEC and the player stood to receive a financial benefit from the agreement to conclude an agreement. On the other hand the player argued that it was a UEC which “allowed one party to force another to contract, in contravention of the principle of freedom of contract.”18
The CAS panel made some interesting comments regarding UECs:19
“It must be noted that the FIFA regulations do not contain any express provision which prohibits the unilateral extension of contracts. The decisions issued by the FIFA DRC and the CAS on unilateral extension clauses have always been based on the spirit and legal framework which the FIFA regulations intend to foster, in other words, the principles which prohibit excessive and unwarranted restrictions on a player’s freedom of movement and personality rights.”
The panel then considered the 5 factors in the Portmann criteria, but noted that 2 additional criteria had been considered in FIFA and CAS jurisprudence, which were:
The extension period should be proportional to the main contract; and
It would be advisable to limit the number of UECs to one.
The panel confirmed the views expressed in the P anathinaikos case, which stated that whether or not a UEC was acceptable had to be considered on a case by case basis, “with the deciding body having to not only look at the wordings of the said clause, but also at the factual background and circumstances which contributed to its insertion, in particular the parties’ attitude during the negotiations and the performance of the Employment Agreement.”
Whilst considering the Portmann criteria, the panel stated that it should serve as a “guiding benchmark” in assessing the validity of UECs, but it was “conscious of the need to not accord too much weight and value to the Portmann criteria at the expense of the very important specifics and circumstances behind each individual dispute.”
After considering the particular facts of the case – notably the fact that the extended term was not excessive, there was no inequality in bargaining power between the parties and the increased financial terms under the clause - the panel ultimately concluded that the extension clause in the contract was, in fact, valid and enforceable.
Ascoli Calcio 1898 S.p.A. v. Papa Waigo N’diaye & Al Wahda Sports and Cultural Club20
In this case the player signed a 1-year contract with Ascoli Calcio, who had an option to extend the contract by 2 years (i.e. a 1+2 deal).
The panel stated that UECs “tend to have their validity questioned because, as the Player states, they could interfere with a party’s fundamental freedom of movement. However, these clauses are not invalid per se: neither the RSTP nor any case law provided by the Parties holds that unilateral clauses are invalid under all circumstances. On the contrary, a case-by-case assessment must be carried out in order to determine the validity of specific clauses.”21
The Panel confirmed the views of the panel in the Gremio case and stated that the Portmann criteria (now with 7 factors) “may be taken into consideration and are important, but that they are not absolute rules, the failure of which would determine the absolute invalidity of the option clause. The overall circumstances of the underlying contract and the parties’ equilibrium in it, must be assessed.”22
In this particular case, the panel concluded that two main issues should be considered when analysing the initial validity of a UEC: “whether the total duration of the contractual relationship is reasonable and according with the applicable regulations; and whether the ensuing terms and conditions of employment are fair and adequately reflect the right that the player has granted to the club without the need of further negotiation.”
The panel applied the Portmann criteria, and noted in particular that the maximum duration of the contract including the UEC was 3 years (less than the maximum of 5 years permitted under the FIFA RSTP) and the player’s salary under the UEC was to increase by either 3 times or 5 times (depending on whether the club was in Serie B or Serie A respectively). Accordingly, considering the circumstances of this case the panel concluded that the UEC was valid.
So, are UECs enforceable or not?
In the 6 CAS cases examined above, 3 concluded that the UEC was valid, 2 concluded it was not, and 1 panel did not rule on the issue. Evidently, the answer is… it entirely depends on the circumstances of the case!
There are however, some guiding principles that football clubs, players and lawyers can consider when analysing the legality of UECs.
Firstly, the Portmann criteria (above) – whilst not entirely determinative – provide a useful checklist which CAS panels will likely apply in some capacity when considering UECs. Moreover, as was evident in the Ascoli Calcio case, two factors in particular are key: whether the total duration of the contract including the UEC is reasonable and in accordance with the FIFA RSTP, and whether the player’s remuneration is sufficiently improved in the option year(s).
Secondly, whilst the applicable law governing the employment contract is important, if the matter is international in nature and is ultimately heard before FIFA/the CAS, it is likely that Swiss law and FIFA regulations (albeit the RSTP is currently silent on the issue) will take precedence in determining whether the UEC is valid. This is because football is a global phenomenon, and (to paraphrase the panel in the Club Atlético Peñarol case) it is important that football regulations have a “uniform and coherent worldwide character… to assure the equality of treatment between all the addressees of such regulations” regardless of which country that addressee (i.e. the player or club) comes from.
Given the general uncertainty around UECs, it is curious that the FIFA RSTP remains silent on this issue. FIFPro, the global players’ union, is staunchly opposed to UECs as it believes, inter alia, they are in conflict with EU freedom of movement principles, violates contractual stability and also because minimum salary increases (which, as noted by the panel in the Ascoli Calcio case, is one of the criteria for its legality) “distorts reality” as it is still not a true reflection of what a player could actually earn.23
In the author’s opinion, it would be beneficial for all football stakeholders if FIFA regulated UECs within the FIFA RSTP. Either to prohibit them altogether, or to allow them – but only under strict parameters (which could be derived from the Portmann Criteria, for example). If UECs were to be allowed and regulated, given the inherent imbalance in bargaining power between clubs and young players, the author believes that any parameters (such as minimum salary increases) should not only be agreed between FIFA and FIFPro (and any other relevant stakeholders) but should also be set at a sufficiently prohibitive level so as to force clubs to really think twice about triggering the UEC.
For example, minimum salary raises could be set at 3 times the salary in the last year of the original contract, or CHF 500 a week24 (to pick a rough figure) – whichever is higher.25 Another criteria could be that the UEC must be triggered at least 6 months before the end of the original contract (so as to give players sufficient notice to be able to find another club if needed), and the pay-rise is effective immediately, not just once the option year starts. Whilst those are merely examples thought of by the author, strict, player-friendly parameters such as those could help ensure that a UEC is only activated by a club in exceptional circumstances, and the player is sufficiently compensated.
The author notes that FIFA, in collaboration with FIFPro, recently issued a new version of the RSTP containing numerous significant amendments to the FIFA RSTP.26 FIFA, FIFPro and other football stakeholders are in discussions about various other new reforms, so it remains to be seen whether the legality of UECs is one of those issues.
In the meantime, any clubs or players looking to include UECs in employment contracts – especially contracts involving young players whose value can rise dramatically in a short time – should keep the principles mentioned in this article in mind when drafting or agreeing these clauses.
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- Tags: Athlete Welfare | Contract | Court of Arbitration for Sport (CAS) | Dispute Resolution | Employment | FIFA | FIFA Regulations on the Status and Transfer of Players | FIFPro | Football | Major League Soccer (MLS) | National Women’s Soccer League | Premier League | UEFA
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About the Author
Tiran Gunawardena is an Associate (Australian Qualified) in the sports law team at Mills & Reeve LLP.
Tiran specialises in international and domestic sports arbitration, with significant experience with proceedings before the Court of Arbitration for Sport (CAS) and regulatory matters in sport. He is dual qualified as an Australian solicitor and chartered accountant, and holds a Master in International Sports Law from ISDE (Madrid). Tiran is also an England Boxing and British Gymnastics Disciplinary Panel member. Prior to working at Mills & Reeve, Tiran spent almost 4 years working in the Corporate Tax and M&A team at PwC Sydney.
Tiran was selected by Who’s Who Legal as a leading sports lawyer in the UK in 2018.