A review of FIFA’s TPO ban and alternative financing models for clubs

Published 15 March 2016 By: Luís Villas-Boas Pires

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Two years have passed since the author’s last LawInSport article1 on third party ownership (“TPO”), and yet the topic remains one of the most talked about in sport news. It seems as though almost all stakeholders in football (FIFA, clubs, third party investors, lawyers, journalists, universities) have commented on the matter, either making statements, taking action or investigating issues such as the legality of the ban, the extent of its scope and effects, and potential alternative financing models to work around its terms. 2

As a result, the author feels that it is an opportune moment to provide an update on some key TPO issues. The update will come in two related articles.

The first article, below, will briefly recap the main points of the TPO ban and then examine a number of the principal alternative investment models that have come to the author’s attention, which allow third parties to continue to participate in the market ostensibly without breaching the terms of the TPO ban.

The second article will examine the case of Doyen Sports Investment limited (Doyen) and Sporting Clube de Portugal (Sporting), concerning the disputed validity of economic rights participation agreements relating to the players Marcos Rojo and Zakaria Labyad.

 

FIFA’s TPO ban

In December 2014, “in order to protect the integrity of the game and the players,3 the Executive Committee of FIFA implemented a ban on TPO4 by adding a new Article 18ter to the FIFA Regulations on the Status and Transfer of Players. The new article states:

"No club or player shall enter into an agreement with a third party whereby a third party is being entitled to participate, either in full or in part, in compensation payable in relation to the future transfer of a player from one club to another, or is being assigned any rights in relation to a future transfer or transfer compensation…"5

Consequences of the ban

Building on the previsions in Article 18bis,6 the principal consequence is that no club or player may enter into contracts with third parties (which are defined as any counterpart other than a club) where the third party has the right to participate in the compensation payable in respect of any future transfer of a player from one club to another or to offset a scenario in which such rights have been subject to transfer to that person.

That is, in the latter situation the club is forbidden from assigning credit rights on a future transfer of economic rights. The author’s view is that this has been the model that football investment firms such as Doyen Sports Investment Limited (“Doyen”) would wish to continue to use had FIFA's ban only targeted the direct ownership of economic rights by third parties.

In other words: the result of FIFA's new article is a worldwide blanket ban on TPO.

Effective date

Although a 3-4 year transition period was expected (as was the case in UEFA's licensing system that provided for a five year transition period for European associations), FIFA decided that the ban took effect from 1 May 2015 with the following caveats:

  • Agreements covered by the ban shall remain in force until they expire (i.e., contracts entered into until 31 December 2014) - Article 18ter number 3;
  • Agreements covered by the ban that were entered into between 1 January 2015 and 30 April 2015 may not have a contractual duration of more than one year beyond their date of signature - Article 18ter number 4;
  • All these contracts must be registered in the TMS by the end of the month of April 2015 therein specifying the details of the third party concerned, the name of the player and the contract´s duration - Article 18ter number 5.

Consequently and save for the caveats mentioned above, clubs are no longer allowed to use this mechanism to share financial risk and hire talented players that would otherwise be beyond their reach.

Early effects on clubs

Brazilian clubs are especially exposed,7 given that almost all of the economic rights of their players are owned by third parties.8 It will also, in the author’s view, have a significant impact on several European leagues, most notably Portugal, Spain, Greece, Belgium, Holland, Turkey.

For example, according to the prominent Portuguese newspaper, Jornal de Notícias in July 2014, Sporting Clube de Portugal (“Sporting”) only owned at that time 100% of the economic rights of a third of its squad, Sport Lisboa e Benfica decided to terminate the Benfica Stars Fund which held economic rights of thirteen players and Futebol Clube do Porto at that time only held 100% of the economic rights of twelve athletes.9

FIFA have also taken a strong stance. For example, they sanctioned the Belgian club FC Seraing with a transfer ban and fine of CHF 150,000 for breaches relating to TPO and third-party influence. Their press release stated, “the transfer ban will prevent the club from registering any new players, nationally or internationally, for four complete and consecutive registration periods”.10

Taking into account the short transition period provided by FIFA, affected clubs are likely experiencing difficult times as they struggle to find alternative financing models that allow them to access capital without breaching the ban. The next section will look at some of the alternative third party investment models that have come to the author’s attention.

 

 

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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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