Buy-out clause disputes under the FIFA Regulations – when to take action
Published 23 May 2014 By: Pekka Albert Aho
The football world has recently seen numerous examples of disputes between a club and a player concerning the content of what is commonly referred to as a buy-out clause.
The most recent high-profile dispute concerning a buy-out clause is of course that of Luis Suarez and Liverpool FC1 in the summer of 2013, with the revelation of Liverpool owner John W Henry2 that the club disregarded a buy-out clause in the player’s contract giving the audience a new perspective into the matter.
The blame for disputes concerning the content of a buy-out clause has often been attributed to unclear or ambiguously drafted contract clauses3. While this may be true in some cases, it is to be noted that a buy-out clause, like all contract clauses, is subject to different interpretations and the interpretations of the contract parties are naturally also influenced by their respective interests at the time. In the author’s opinion, a buy-out clause cannot be automatically triggered in a way that would guarantee the transfer of an under contract player away from a club without problems if the club disagrees with the interpretation of the clause. As a rule, the transfer of an under contract football player to a new club requires the consent of the player’s current club and the rules of FIFA do not foresee the possibility of a contractual clause whereby a transfer could take place according to the normal procedures if the current club refuses its consent. If the club assumes the position that the buy-out clause does not impose an obligation to release the player, it can refuse to express its consent to the transfer even in situations where an objective interpretation of the clause could result in the club being obliged to allow the player to leave. Therefore, when a player asserts the existence of a buy-out clause and a club disagrees, the relevant question in the short-term is not what the clause objectively says, but rather what each party can do to protect its position and to force the other to comply with the subjective interpretation of the clause it considers correct.
In the situation under review, the interest of the club is to maintain the status quo, that is, the player staying at the club despite the supposed effects of the buy-out clause. It is therefore the player that needs to take action in order to force through his perceived right to transfer to another club on the basis of the clause. The relevant question from the point of view of both parties therefore becomes; what, if anything, can the player do to enforce the perceived obligation of the club arising from the buy-out clause?
This article examines the options available to a football player in the event of a dispute regarding the existence and/or effects of a buy-out clause with his club when the player is seeking an international transfer upon invoking the buy-out clause and the sporting rules applicable are the FIFA Regulations on the Status and Transfer of Players4 (“FIFA Regulations”). The aim of the article is to understand the positions of both the club denying the effects of the clause as well as the player claiming the existence of a right to transfer due to a buy-out clause. As a preliminary matter, it is to be noted that national sporting regulations, national laws as well as fiscal legislation might have an impact on the evaluation of a single case.5 However, national sporting regulations and even national laws are not always decisive in matters concerning international football and evaluating all the potential scenarios would not be opportune in any case.6 Considerations regarding national laws, national sporting regulations as well as fiscal considerations are therefore ignored in the present article.
Non-compliance with buy-out clause evaluated under the FIFA Regulations
A buy-out clause in a football player’s contract typically foresees the payment of an amount of money to the club in exchange for the player being free to transfer to another club. When a club denies that the contractual clause in question produces this effect, it can withhold its consent to the transfer and the parties will become locked in a dispute concerning the content of the contract during the validity of the same contract. Within the scope of application of the FIFA Regulations, the competent bodies to rule on the dispute are the FIFA Dispute Resolution Chamber (“DRC”) and/or the Court of Arbitration for Sport (“CAS”). In this context, it is important to note that a proceeding to resolve a contractual dispute before these bodies takes time and arriving to a final decision regarding the matter can be considered a question of several months or even several years. Continuing performance of the contract while waiting for a decision of the FIFA DRC or the CAS regarding the dispute is therefore usually not a feasible course of action for the player.
A lack of consent by the player’s current club does not in itself prevent the player from invoking the buy-out clause as a reason leaving and signing with another club in a different country. The problem with this course of action is that it might be considered to constitute a unilateral termination of the player’s contract without just cause and give rise to consequences on both the player as well as his new club. In cases of unilateral termination of contract without just cause, the provisions of the famous article 17 of the FIFA Regulations apply and the party that has breached the contract is liable to incur sporting sanctions as well as pay compensation. According to Article 17 paragraphs 3 and 4 of the FIFA Regulations, sporting sanctions shall be imposed on a player found to be in breach of a contract during the protected period and a club found to be inducing a breach of contract by a player. The definitions of the FIFA Regulations state that the protected period is “a period of three entire seasons or three years, whichever comes first, following the entry into force of a contract, where such contract is concluded prior to the 28th birthday of the professional, or two entire seasons or two years, whichever comes first, following the entry into force of a contract, where such contract is concluded after the 28th birthday of the professional”. The sporting sanction referred to is a ban on playing official matches for a period of four to six months for the player, whereas a club inducing a player to breach a contract will be banned from registering any new players either nationally or internationally for two entire and consecutive registration periods.7 In particular, the heavy sanction faced by the new club has meant that clubs are often unwilling to take the risk of signing a player who has terminated his contract during the protected period.
However, the FIFA Commentary to the FIFA Regulations on the Status and Transfer of Players (the “Commentary”) concerning Article 17 contains a potentially significant statement concerning terminations of contract with reference to buy-out clauses:
“The parties may, however, stipulate in the contract the amount that the player shall pay to the club as compensation in order to unilaterally terminate the contract (a so-called buyout clause). The advantage of this clause is that the parties mutually agree on the amount at the very beginning and fix this in the contract. By paying this amount to the club, the player is entitled to unilaterally terminate the employment contract. With this buyout clause, the parties agree to give the player the opportunity to cancel the contract at any moment and without a valid reason, i.e. also during the protected period, and as such, no sporting sanctions may be imposed on the player as a result of the premature termination.”8
The Commentary therefore rather clearly states that a player who terminates his contract by invoking a buy-out clause will not incur sporting sanctions. Nevertheless, the above statement contained in the Commentary cannot be considered to guarantee the player a safe passage to his new club.
First of all, the Commentary is not in itself a binding source of law and only provides for guidelines to interpreting the FIFA Regulations.9 Since the provision in question is not contained in any official regulation of FIFA, a deciding body is not bound to follow the statement upon resolving a contractual dispute.
Second of all, any inaccuracies in the drafting of a buy-out clause can make the applicability of the statement in question less certain. It has been suggested that a distinction should be made between buy-out clauses and liquidated damages clauses. According to this theory, a buy-out clause grants the right to a party to terminate the contract in exchange of a certain predetermined amount without sporting sanctions being applicable, but should not be considered relevant for determining the amount of compensation payable in accordance with Article 17 of the FIFA Regulations for a unilateral termination of contract without just cause. On the other hand, a liquidated damages clause does not grant either party a right to terminate the contract without sporting sanctions being applicable and is instead relevant only for fixing the amount of compensation for a unilateral termination in accordance with Article 17.10 However, uncertainty regarding sporting sanctions is caused by the difficulty in classifying a clause as either a buy-out clause or a liquidated damages clause, which has been described as “one of the most difficult tasks of any deciding authority”.11
CAS jurisprudence tends to consider that clauses providing for an amount of compensation payable by a player to a club have the legal nature of liquidated damages provisions, but does not offer a conclusive answer with regard to the question of sporting sanctions.12 In CAS 2009/A/1909 RCD Mallorca SAD & A. v. FIFA & UMM Salal SC, the CAS panel did not consider that the existence of a liquidated damages clause excluded sporting sanctions for a unilateral termination of contract.13 Surprisingly, the panel went even further and suggested that the parties might not be allowed to exclude sporting sanctions foreseen in the FIFA Regulations by means of a contract between the parties.14 However, it appears that the panel did not take into account what is stated in the Commentary upon taking the decision and the value of the award as a precedent regarding the issue is therefore questionable. A different approach was adopted in the matter CAS 2011/A/2356 SS Lazio S.p.A. v. CA Vélez Sarsfield & FIFA concerning solidarity contribution in accordance with the FIFA Regulations. A provision, which at first sight appeared to be intended as a liquidated damages clause, was characterized as a buy-out clause by FIFA acting as a party in the arbitration.15 The CAS panel seemed to agree and interpreted the clause to indicate an advance consent of the club for the player leaving in exchange of the amount in question.16
The status of the Commentary as a non-binding source of law, clauses subject to different interpretations and inconclusive jurisprudence means that there is significant room for doubt about whether a player can safely terminate his contract in reliance of a buy-out clause. Most importantly, a club interested in a player involved in a dispute over a buy-out clause might not feel entirely confident of avoiding sporting sanctions arising from the transfer if the player is within the protected period. Even in circumstances where it can be considered improbable that a club signing a player on the basis of a buy-out clause would face sanctions due to what is stated in the Commentary, the risk of a transfer ban for two registration periods means that the club is gambling on high stakes upon signing the player.17
One can therefore consider that a club resisting the attempt of a player to leave on the basis of a buy-out clause is in a reasonably strong position if the contract is within the protected period. The risk of sporting sanctions poses a significant deterrent to the player against a unilateral termination of the contract and can make leaving without the consent of the club difficult.
Outside the protected period
The evaluation of the matter changes significantly if the player is outside the protected period when the dispute arises. A player who terminates his contract without just cause outside the protected period still faces the obligation to pay compensation to his former club, with the player’s new club jointly and severally liable for the payment. However, a termination outside the protected period does not give rise to sporting sanctions and there is therefore less deterrent against the player terminating the contract in case of a dispute regarding the effects of a buy-out clause.18
A club that does not want to lose a player might nevertheless consider resisting an attempt of the player to leave, reasoning that the amount payable to the club will be the one indicated in the buy-out clause even if the player terminates the contract unilaterally due to the dispute. However, the evaluation of the question might not be as simple as it appears at first sight. Since no sporting sanctions are applicable outside the protected period, the player does not need to rely on the statement of the Commentary concerning buy-out clauses to avoid sporting sanctions in the event that the termination is considered to have taken place without just cause. The danger of sporting sanctions therefore does not deter the player from invoking just cause to terminate the contract based on the club’s perceived non-compliance with the buy-out clause, or, simply terminating the contract without just cause and without reference to the buy-out clause.
When evaluating a termination of contract without just cause, the above described distinction between buy-out clauses and liquidated damages clauses might influence the decision regarding the amount of compensation. In the event that the clause under review is not considered to stipulate the amount of compensation for unilateral termination of contract in accordance with Article 17 of the FIFA Regulations, i.e. is not considered a liquidated damages clause, the theory foresees the deciding body ignoring the clause when the amount of compensation is determined.19
What is more, even in the event that the clause is considered to provide for the amount of compensation in accordance with Article 17, it is not certain that the clause will be upheld by the deciding body. The FIFA DRC has consistently considered that a clause providing the amount of compensation must be proportional to the value of the contract in question and has demonstrated its readiness to mitigate or ignore clauses that do not pass the test.20 CAS jurisprudence appears to share the suspicious approach to the clauses and there are several examples of the CAS refusing to take them into consideration.21 In fact, a research of the jurisprudence indicates that the clauses appear to have a rather low rate of survival, up to the point where it is more difficult to find decisions in which a clause fixing the amount of compensation due in accordance with Article 17 of the FIFA Regulations has been upheld by the FIFA DRC or the CAS.22
On the other hand, it is difficult to foresee circumstances under which the club would be considered to have the right to receive a higher compensation to that indicated in the clause under review. A clause providing for an indemnity can usually be considered to either provide for a right to the player to terminate the contract for the price indicated or to establish an amount of compensation for a termination agreed to in advance by the parties. It would therefore seem to require unusual circumstances for a judging body to consider that a higher compensation to that established by the parties in the contract would be due. In practice, a contractual clause determining the amount of compensation will be more likely to indicate the maximum amount that can be considered due to the club, rather than a guarantee that the club will receive at least the amount established in the clause as compensation.
Finally, it is also worth highlighting that the time it takes for the deciding body to reach the final decision presents a further problem for the club. Receiving compensation for a player that has left the club several years after the event means that the club will have neither the player nor the funds to replace him in the meantime.
The position of the player is therefore stronger outside the protected period, mainly because no sporting sanctions are applicable for a unilateral termination of the contract. On the other hand, the procedural risk concerning the amount of compensation as well as the delay in receiving it caused by the litigation mean that the club will have the incentive to avoid an escalation of the dispute. Overall, the position of a club attempting to prevent a player from relying on a buy-out clause to transfer away from the club is therefore considerably weaker if the protected period of the contract has expired.
When a dispute concerning a buy-out clause arises between a player and a club, the positions of the parties depend to a significant degree on whether the contract is still within the protected period as defined in the FIFA Regulations. Inside the protected period, the options of the player to react against the club on a legal level are heavily limited by the sporting sanctions applicable for a unilateral termination of contract without just cause. However, if the protected period of the contract has expired, the position of the club becomes weaker due to the negative consequences faced by the club if the player unilaterally terminates the contract due to the dispute.
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- Tags: Contract Law | Court of Arbitration for Sport (CAS) | Employment Law | FIFA | FIFA Dispute Resolution Chamber | FIFA Regulations on the Status and Transfer of Players | Football | Governance | Regulation
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