What has the Marcos Rojo case taught us about third party investment in footballers?

Published 16 March 2016 | Authored by: Luís Villas-Boas Pires

This is the author’s second of two articles that aim to update the reader about current goings-on in the world of third party ownership (TPO) following FIFA’s ban of the practice in December 2014.

The first article recapped the main points of the TPO ban and then examined a number of the principal alternative investment models that have come to the author’s attention that ostensibly allow third party investors to continue to participate in the market without breaching the terms of Article 18ter.1

This second article examines the case between Doyen Sports Investment Limited (Doyen) and Sporting Clube de Portugal (Sporting), concerning the disputed validity of two economic rights participation agreements relating to the players Marcos Rojo and Zakaria Labyad.

In December 2015, the Court of Arbitration for Sport (CAS) found in favor of Doyen,2 ruling that the agreements were valid and their terms enforceable. While unfortunately the CAS’s full decision and reasoning has not been made public, the agreement itself is available on the website footballleaks.3

Accordingly, a preliminary analysis of the case based upon an examination of its facts, the terms of agreement relating to Marcos Rojo, and other public information is now possible.

 

Overview

According to public statements made by Sporting on the Portuguese Securities Commission´s website (on 144 and 19 August 20145), the club terminated the agreements with Doyen for the players Marcos Rojo and Zakaria Labyad with just cause and, as a result, "SPORTING SAD informs that it will immediately refund Doyen for the amount invested by this entity, in accordance with the applicable law." That refund took place in the amount of 3 million euros.

Sporting’s annual report6 also mentions that the club believes that Doyen breached the obligation stated in the economic rights participation agreement of not interfering in the internal policy of the club, not making pressure on the transfer of the player and of confidentiality. In addition, Sporting defends that such agreement is null and void on grounds of immorality and illegality.

The alleged interference of Doyen in the transfer process is mentioned in the above press release, in particular the reference to "illegitimate interference and pressures that were being conducted by the CEO of Doyen, Mr. Nelio Lucas" and the fact that Sporting "never gave into the pressures and interference which were systematically practiced by Doyen".7

 

Facts

On 14 August 2014, Sporting sent a letter to Doyen terminating, with just cause and immediate effect, the economic rights participation agreement. In that same letter Sporting, also states that such agreement was null and void in any event. More details on what concerns these arguments will be given later in this article.

On 21 August 2014, Doyen responded to Sporting, rejecting the termination of the referred agreement and also stating that the same was valid and enforceable. As a result, Doyen sent the relevant invoice for the amounts to be paid by Sporting in accordance with clause 7 of the economic rights participation agreement, since Rojo was transferred to Manchester United.

In fact, on 19 August 2014, Sporting has transferred Rojo to Manchester United under the following conditions:

  1. the amount of € 20.000.000 to be paid in the three installments,
    1. € 10.000.000 to be paid immediately;
    2. € 5.000.000 to be paid on 1 December 2014;
    3. € 5.000.000 to be paid on 1 July 2015; and
  2. the 20% of the capital gain of any future transfer above the amount of € 23.000.000 and (c) the loan of the football player “Nani”, free of charges for Sporting during the season 2014/2015.

In response to Doyen’s letter, Sporting returned the invoice and paid to Doyen € 4.500.000, which the latter assumed as a partial payment of the sum owed by Sporting for the transfer of Rojo.

Following the exchange of these letters, both parties decided to present their own statement claim and relevant response before the CAS.8 There respective arguments can be summarized as follows.

 

Arguments of the parties

Doyen

In short, Doyen argued that:

  1. the economic rights participation agreement signed between both parties is valid and binding under Swiss law<;9
  2. no general causes of nullity are applicable to the agreement (e.g., the agreement is not be considered as impossible, unlawful or with a serious imbalance between the obligations of the parties,10 or there are grounds for the rescission of the agreement for unfair advantage, for essential error or for duress11); and
  3. has not breached the clauses 6.2,12 1413 or 2014 of the agreement;

and as a result, the agreement is still bound and enforceable in its entirety for both parties.

Since the agreement is still valid and enforceable to both parties based on that arguments and legal grounds, Doyen believes they are entitled to receive from Sporting:

  • 75% of € 20.000.000 (i.e., € 15.000.000);
  • 75% of the economic value of the loan of the football player “Nani” (who was loaned free of charge by Manchester United to Sporting);
  • 75% to applied to the 20% of the excess of any future transfer fee of Rojo from Manchester United above the amount of € 23.000.000; and
  • 5% interest on the above amounts

Sporting

On the other hand, Sporting argued that:

  1. the agreement is null and void on grounds of:
    1. immorality (e.g., offence to public morality,15 infringement on economic freedom and produce market disturbances);
    2. illegality (e.g. contravene Swiss law,16 EU law,17 personality rights18); and
    3. in case the Panel consider that the agreement is valid, Sporting has validly terminate it with just cause (as provided in articles 107 and 108 of the Swiss Code of Obligations) on grounds of a material breach of Doyen of its obligations under the clauses 5.1,19 6.2, 14 and 20 of the agreement

As a result of these arguments and legal grounds, Sporting counterclaims that they have the right to be compensated for damages:

  • in the amount of € 10.000.000 as a result of the repeated contractual breaches of Doyen by imposing a considerable pressure on the transfer of Rojo;20 and
  • in the amount of € 3.000.000 due to violation of Sporting personality rights (e.g. image and reputation) by Doyen as provided in the articles 49, 42 (2) and 43 of the Swiss Code of Obligations

 

The economic rights participation agreement between Sporting and Doyen relating to Rojo

In order to better understand how its legal and financial structure works, let’s now look at main topics of the economic rights participation agreement executed between Sporting and Doyen on 23 August 2012.

Scope

Firstly, the scope of this agreement is the sale by Sporting to Doyen of 75% of the player’s economic rights for a price equivalent to 3,000,000 Euros and, as a result, Sporting shall be the owner of 25% of those rights, while Doyen owns the rest.

The economic right defined under this agreement is the financial value stemming of the player´s registration rights and includes, for example,

  1. any transfer fee, or
  2. any payment made under the agreement to the player in lieu of a transfer fee where the player extends his contract with the club, or
  3. any compensation arising from the termination of the employment contract,21 or
  4. the values from the assignment or exploitation of the image rights of the player by any third party.

To sum up, Doyen is entitled to a share equal to 75% of the proceeds relating to any of the following:

  • Transfer,
  • Loan,
  • Compensation for the termination of the employment contract,
  • Insurance claim,
  • Transfer offer that is rejected,
  • Player becoming a free agent,
  • Re-Signing with the Club.

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About the Author

Luís Villas-Boas Pires

Luís Villas-Boas Pires

Luís Villas-Boas Pires holds an Undergraduate Degree in Law from the Universidade Católica Portuguesa. Prior to his career in sports law, Luís worked for 11 years in both Lisbon and London as a M&A, Corporate and Capital Markets lawyer.

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