When does a buy-out clause trigger a “transfer” under FIFA Regulations?
Published 03 November 2016 By: Alfonso León Lleó
This article reviews the interpretation of what constitutes a "transfer" under the Fédération Internationale de Football Association’ (FIFA) Regulations on the Status and Transfer of Players (FIFA RSTP) and its implications with regards to the triggering of FIFA’s solidarity contribution mechanism (see this article1 for a detailed analysis of solidarity contributions in football).
Football player transfers are not only of interest, or of benefit, to larger football clubs but also smaller clubs that are also indirectly affected by international player transfers through the solidarity and compensation mechanisms implemented by the RSPT.
This article focuses exclusively on the payment of the solidarity contribution mechanism, and specifically the event triggering the right to payment, namely when the international transfer of a player actually takes place.
Article 21 of the FIFA RSTP provides as it follows:
“If a professional is transferred before the expiry of his contract, any club that has contributed to his education and training shall receive a proportion of the compensation paid to his former club (solidarity contribution). The provisions concerning solidarity contributions are set out in Annexe 5 of these regulations.”
The same applies in case of an international loan, in accordance with Article 10, paragraph 1 FIFA RSTP:
“A professional may be loaned to another club on the basis of a written agreement between him and the clubs concerned. Any 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.”
The definition of a "transfer"
Much has been written on the solidarity contribution deriving from the international player transfer mechanism implemented by the FIFA RSTP2. Whilst this is uncontroversial, one aspect that is worthy of further analysis is the definition of what is “transfer” for the purposes of the FIFA RSTP?
There is no explicit definition provided by the FIFA RSTP as to what is considered to be a “transfer”. Therefore sports lawyers must resort to complementary legal sources such as Swiss legislation3 and the jurisprudence rendered by the Court of arbitration for Sport (CAS).
The notion of “transfer” does not exclusively encompass a “sale” as expressed by the CAS Panel constituted in the arbitration proceedings CAS 2010/A/2098 (commonly known as the “Keita case”), which pointed out “a transfer of a player can also take place outside the scheme of a (“sale”) contract […]”. In accordance with Article 184 of the Swiss Code of Obligations4> a “sale” is a:
“[…] contract whereby the seller obligates himself to deliver to the buyer the object of the purchase and to transfer title thereto to the buyer, and the buyer obligates himself to pay the purchase price to the seller”
Therefore, in accordance with Swiss law, the consent of the seller, i.e. the former club, is crucial, at least when it comes to an assessment of whether a “sale” took place. This criteria is also applicable to transfers under the FIFA RSTP, as ruled by the CAS, and detailed below.
CAS precedents relating to the "transfer" of a player
Two CAS Panels in the Keita and Zárate cases, as described below, have addressed the question of whether a “transfer” has or has not taken place from different perspectives.
The Keita case
The Keita case involved the transfer of the player Seydou Keita from the French club, RC Lens, to the Spanish club Sevilla Club de Fútbol S.A.D. (hereinafter, “Sevilla”). Both clubs had agreed that in case of a “resale”5 of Keita to a third club from Sevilla, RC Lens would be entitled to a percentage out of it. The Player relied on Articles 13 and 16.1 of the Spanish Real Decreto 1006/19856 (“Real Decreto”) - a specific piece of legislation applicable in the sports sphere in Spain, providing in favour of sportspersons the right to unilaterally and prematurely terminate their employment contracts - and unilaterally terminated his employment contract with Sevilla, after satisfying the amount of compensation stipulated in the Real Decreto by means of a cheque issued by FC Barcelona. The dispute was over whether the Player's actions were tantamount to a sale. The Player believed his actions could have constituted a "sale" as in their view all three parties involved to it had agreed to the "sale".
The Zárate case7
In the Zárate case, the transaction that took place could be considered a “transfer” in the terms referenced by the FIFA RSTP. Both the Player, Mauro Matías Zárate, and his former club, Qatari team, Al Saad, had agreed, in the player's contract, to an amount that would allow the Player to unilaterally and prematurely terminate his employment contract8. This is commonly known as a “buy-out clause”. The Italian club, Lazio S.p.A, disbursed the said amount in favour of Al Saad, resulting in the player’s release from his previous employment contract and subsequent transfer to the Italian side. The main issue in the proceedings was whether the activation of the players “buy-out clause” amounted to a “transfer” for the purposes of the FIFA RSTP and therefore entailed the obligation to pay solidarity contribution.
In both cases, the professional football players involved had gone through a specific type of transaction that in the end allowed them to terminate their previous employment contract and subsequently enter into a new employment contract with a new club. However, it is unclear whether the transactions could be considered as "transfers" in the sense of Article 21 of the FIFA RSTP, thus triggering the right to solidarity contribution (which would increase the overall price of the purchase of the services of the player, as described below).
Solidarity contribution following unilateral termination
In this respect, the most fundamental question that arises is: can a situation where a player unilaterally terminates his employment contract and then registers with a new club qualify as a "transfer"?
A crucial element that needs to be evaluated on a case-by-case basis is whether the acquiring club can be considered as having cooperated in the said transaction.
In the Zárate case, the CAS Panel detailed that the elements identifying a "transfer" are, in its view:
- The consent of the club of origin to the early termination of its contract with the player;
- The willingness and consent of the club of acquiring club to acquire the player’s rights;
- The consent of the player to move from one club to the other, and
- The price or value of the transaction.
When is consent given to transfer a player?
The transactions giving rise to the disputes in both Keita and Zárate do not match the common pattern of a transfer where “the wills and consents of all the parties are declared in the same act by signing a written agreement”9.
The consent of the club of origin is required for a “transfer” to be considered as having occurred. Zárate clearly referred to this as a fundamental requirement. However, it could be considered that in both Zárate and Keita, the former clubs had agreed in advance to the possibility of an eventual future transfer of their football players. This was in the form of a pre-established contractual fee to be paid prior to the expiration of the employment agreement.
The CAS Panel in Keita ruled that Sevilla, by agreeing in advance with Keita the measure of the indemnity, i.e. the amount to be paid by the latter in case of premature termination, did not imply “any consent to the termination of the Employment Agreement or any offer to a third party”.10 This assertion casts doubts when compared to the Zárate ruling. The measure of the indemnity, EUR 14 Million, was quantified in July 2007 when the employment contract was concluded between Sevilla and Keita. However, the player did not resort to said clause until 10 months later.
Is it possible to consider that the 10-month gap would mean that Sevilla was no longer willing to transfer Keita for EUR 14 Million, i.e. had not consented to it in advance? This was the conclusion reached by the CAS Panel.
However, it could be argued that when in July 2007 Sevilla set as EUR 14 Million the amount of indemnification to be received in case the player exercised his statutory right to terminate his employment contract, as per the Real Decreto, it was quantifying and establishing in advance the amount of compensation it would deem sufficient in order to be considered as fully satisfied for their loss of the services of Keita. In fact, although Articles 13 and 16.1 of the Real Decreto provides for a termination right that can be exercised by professional football players; contractual parties to an employment relationship are not legally obliged in Spain to determine in advance the quantification of the right. Parties are given the choice to opt for stipulating the amount contractually or leaving it to the discretion of the Spanish labour courts at a later stage.
Accordingly, if the option was used by Sevilla, it could have been eventually alleged that his was simply due because it preferred determining in advance the measure of the indemnity instead of leaving it to a judge’s discretion.
Substance should prevail over form
In order to determine whether a particular transaction entails a “transfer” in light of the FIFA RSTP what is critical is, according to the CAS Panel in Zárate:
“[…] the reality and the substance of the transaction shall prevail over discussions about forms or schemes of transfers, especially when the FIFA provisions do not impose such schemes or forms for the payment of the solidarity contribution”11
Related thereto, what matters to determine the existence of a “transfer” under the FIFA RSTP is whether a particular player’s move meets all four requirements stipulated above. In both Keita and Zárate it can be comfortably stated that the following three criteria were satisfied:
- The willingness and consent of the new club of acquiring club to acquire the player’s rights (Barcelona and Lazio).
- The consent of the player to move from one club to the other (Seydou Keita and Mauro Zárate), and
- The price or value of the transaction (here 14 Million Euro and 20 Million Euro).
However, the consent of the respective club of origin to the early termination of its contract with the player remained controversial in both cases.
The CAS panels evaluated the said consent given in advance by the former club differently in each case. However, it could have been argued that the transactions in both Keita and Zárate are alike with regards to the very specific issue of the consent given in advance by the old club to the eventual transfer of the player for a predetermined price.
Both Al Saad and Sevilla had stipulated at the time of the conclusion of the employment contract the relevant amount to be paid in case of early termination. It is true that Sevilla did that on the basis of the Real Decreto12, while Al Saad’s legal basis in order to stipulate in advance the amount of compensation in case of a premature termination was the FIFA RSTP13.
However, neither of these legal sources compelled either club to pre-determine the amount of compensation. Both Sevilla and Al Saad were free to decide not to establish any amount in advance and leave it to the discretion of the competent tribunal or deciding bodies, i.e. respectively the Spanish labour courts and the FIFA Dispute Resolution Chamber.
The option chosen by both clubs to agree a pre-determined amount to release their player, could be construed similarly. However, this was not the case as is illustrated by the decisions of the CAS panels.
In Zárate, it was ruled as it follows:
“75. […] From the very moment in which Al Saad accepted to include Clause X3 in the Contract it was undoubtedly consenting and admitting that the Player could leave Al Saad to join another club upon Al Saad’s receipt of compensation of EUR 20,000,000. This is to be understood as a consent rendered in advance which in the Panel’s view is legally feasible. […]”
In Keita the same could have been asserted, i.e. that from the very moment in which Sevilla accepted to fix in EUR 14 Million the indemnity, it was admitting that the player could leave Sevilla to join another club upon receipt of said compensation.
Practitioners have argued that the above could have been considered in Keita as well as a consent rendered in advance by the former club.
It is true that under the Real Decreto, clubs are bound by a statutory provision necessarily requiring them to let a player go subject to the payment of compensation. However, this indemnity may or may not be fixed in advance by the club of origin. For instance, it could have been set at EUR 60 Million, serving as a strong deterrent for eventually interested clubs.
However, by setting it at EUR 14 Million, it could have been argued that the former club was eventually leaving “the door open” for third parties to opt for the services of the player at a reasonable and above all, certain amount.
In this case, if the indemnity would not have been fixed contractually in advance, the player could have sought redress before the Spanish courts and at that stage the indemnity fixed by a Spanish judge would have been uncertain, and definitely, could not have been anticipated by the former club. However, in such a scenario, the uncertainty related to the price of the transaction could have made the acquiring club considerably more reluctant to sign the player than if said amount would not have been already fixed in the contract.
By fixing it in advance the amount required to release the player, it could be assumed that the former club was of the opinion that EUR 14 Million was a fair and reasonable amount that remedied the damages caused by an eventual premature termination from Keita of his employment contract.
Further to the above, the following part of the CAS award rendered in Keita conflicts with that in Zárate:
Para. 77 (i) p. 17:
“The move of Keita did not depend on Sevilla, as a legal provision entitled the player to leave at any time by paying compensation. This is totally different from the present case, in which Al Saad, as explained above, freely decided to consent (in advance) to the potential future move of the Player. Al Saad was not bound by a Law necessarily requiring it to let a player go (as happened in the Keita case). Its agreement or consent was necessary to effect the transfer of the Player and it freely and voluntarily, decided, by means of the corresponding contractual cause, to permit the move of the Player in exchange for a compensation. Al Saad consented to such leave, this being of the relevant elements of a transfer. This, in the Panel’s view makes the difference.”
Contrasting Keita and Zárate cases
In the author’s view, the truth is that while the main scope of Zárate was whether the solidarity contribution was triggered in light of the FIFA RSTP, in Keita the main discussion was whether a payment was due on the basis of a contractual clause. However, an underlying and decisive issue occurred in both cases: whether the former clubs had consented in advance to the unilateral termination exercised by their respective players prior to the expiration of the contracts.
The CAS panel in both cases drew what they considered a major distinction in between them: the alleged lack of consent to the early termination of their respective player from the former club, Sevilla in the Keita case, as opposed to the consent given in advance by Al Saad in the Zárate case. However, it needs to be emphasized that while the applicable legal framework - Real Decreto and FIFA RSTP- differs in both cases, it still shares some features that are of the utmost relevance. In fact, both of them allow parties to a contractual relationship to quantify in advance the amount of compensation to be paid in case of early termination, or not.
Both under the Real Decreto and the FIFA RSTP parties are permitted to define in advance the amount of compensation to be paid further to an early contractual termination, OR allow the competent courts, respectively the Spanish labour courts and the FIFA DRC to calculate it. Thereby, both former clubs, i.e. Sevilla and Al Saad opted by mutual agreement with the players, to stipulate said amount of compensation in advance. Either of them could have chosen not to fix said amount in advance and leave it to the competent judicial bodies, however this was not the case. Practitioners could argue that said choice taken by both former clubs should be construed likewise.
This was not the view of the CAS panel constituted in Zárate. According to the latter, the fact that Al Saad determined in advance the amount of compensation to be paid by Zárate in case the player desired to prematurely terminate the employment contract was not tantamount to the attitude of Sevilla when determining in advance the amount of compensation to be paid by Keita in case the player desired to prematurely put an end to his employment contract.
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