In the summer of 2006 two of the hottest prospects of Argentinian football, Carlos Tevez and Javier Mascherano signed for English club West Ham United in a deal that raised eyebrows and a lot of suspicion regarding its financial terms. It was later revealed that the specifics of the deal were left obscure on purpose, as the players’ economic rights were owned by an off-shore company called MSI, which could potentially influence the club’s strategical decisions about the players and take a share of any future transfer fee.
It was the first major exposure of European football to TPO (Third Party Ownership) and TPI (Third Party Influence) agreements that drew so much public attention and might have constituted the turning point in FIFA’s attitude. After that particular incident the pressure from European football clubs against such phenomena grew radically. Consequently, according to Art 18bis, and 18ter FIFA RSTP (Regulation on the Status and Transfers of Players) any agreement that allows a third party (including clubs, players, agents, companies but not the previous club of the player concerned) to derive any kind of rights over a club’s or a player’s transfer or employment affairs is prohibited.
Article 18bis – “No club shall enter into a contract which enables the counter club/counter clubs, and vice versa, or any third party to acquire the ability to influence in employment and transfer-related matters its independence, its policies or the performance of its teams”
Article 18ter “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 oneclub to another or is being assigned any rights in relation to a future transfer or transfer compensation.”
More specifically, the prohibition of Art 18ter, which concerns TPO agreements, prevents clubs or players from transferring part of a future transfer fee to any third party, while Art.18bis dealing with TPI is more generic and aims to secure the independence of clubs regarding their transfer and employment decisions from any external influence.
Michel Platini, the UEFA president at the time of the ban, condemned the use of TPO saying, “I think we are dealing with a type of slavery that belongs in the past,” he said. “Today it is shameful to see some players with one of their arms belonging to one person, a leg belonging to a pension fund located who knows where and a third person owning his foot.”
But how was that even possible?
Contrary to popular belief, the transfer of a player from one football club to another, is not a single transaction where the buying club pays the transfer fee and in exchange “acquires” the player. The transfer of a player from one club to another – to use the FIFA RSTP terminology – entails the transfer of the federative (or registration) rights of the player, that can be transferred only between national associations and are necessary in order to affiliate a player with a specific football club. For example, a player moving in an international transfer from club X to club Y, needs to move his federative rights from the football federation where the former club is registered to the football federation where the buying club belongs. Are you still following?
At any one moment the federative rights of a player can only belong to one national football association and that player can only be affiliated to play for one football club. In cases of domestic transfers (where a player moves between two clubs within the same association) the financial exchange is the same regarding the clubs, but the player’s federative rights remain in the same association.
Apart from the federative rights aspect, the transfer of a player also entails the transfer – at least part – of their economic rights between the clubs concerned. The economic rights of a football player are essentially the economic value of their services – in other words, the right over any transfer fee – but, as the majority of financially depictable sizes they do not constitute an indivisible notion from a legal point of view, and therefore they can be allocated between more than one parties that have paid to acquire them.
The concept of economic rights in football appear to be much more complex than that of federative rights in the sense that they can, at least in theory, belong to more than one parties concurrently, as they can be disassociated from federative rights. In practical terms that means that even today a club is able to possess a player’s federative rights, which are the crucial in terms of fielding them, despite having acquired only part of their economic rights.
The transfer of the federative rights of the player are “football specific” in the sense that there is no similar concept to compare it with outside sports. On the contrary, the transfer of entitlement over future transfer fees – as economic rights are effectively defined – is nothing more than a simple agreement of civil law, taking the form of either assignment of rights or an agreement in favour of a third individual, depending on the applicable law chosen by the parties. This to clarify that economic rights are not an asset that exist parallel with federative rights, but they only exist when there is a transfer fee.
It is understood that segregation of a player’s rights could lead to the creation of a whole industry behind the scenes in the football world, where economic rights would constantly move between parties for the sole purpose of profit. Furthermore, that parties could cause a distortion in the function of the football market and affect the players’ careers, as they would have the power to dictate the strategic decisions of their counterparties, through agreements signed between them and football clubs and/or players regarding the exploitation of the latters’ economic rights. Just imagine a player moving every summer from club to club and being loaned to different clubs during each winter transfer period. It is not realistic to expect this player to develop and reach his full potential when he is forced to a change environment every six months. Imagine the amount of money that would change hands outside the football industry if this was case.
FIFA feared that this kind of situation might arise and they decided to forbid the disassociation of a player’s economic and federative rights, apart from the aforementioned exception regarding his former employers, a devise that effectively permitted the survival of the “Percentage over a future transfer fee” clauses included in transfer agreements. In addition, FIFA also forbid any kind of third-party influence over clubs and players as described above. The prohibition regarding future transfers includes all commissions, remunerations and fees of all the parties involved in the gross sum of that particular transfer, which made the allocation of costs between the interesting parties and consequently the materialization of transfers far easier as the principle of contractual freedom enables the overcoming of any obstacles.
Sam Allardyce, the England manager in 2016 was caught on camera giving advice to reporters posing as Far East businessmen on how to “get round rules” about third-party ownership of players. In footage filmed by undercover Telegraph reporters, Allardyce said it was “not a problem” to bypass the rules introduced by his employer, the Football Association, in 2008. He told the reporters he knew of certain agents “doing it all the time” and added: “You can still get around it. I mean obviously the big money’s here.” He lost his job after only one game in charge.
Kill the patient to cure the disease
The “kill the patient to cure the disease” approach adopted by FIFA was an indirect admission by the global confederation that they were unable to properly control the market and constituted a major infringement over the player’s rights. These provisions rendered it practically impossible for a player to financially exploit his economic value as an employee, unlike many other professionals in the world. Even though there were several concerns about the legality of the provisions especially under EU law, the Swiss Federal Tribunal confirmed with its judgement in case 4A_260/2017 the conformity of Art 18ter FIFA RSTP with the mandatory EU law provisions regarding the freedom of capital, workers and provisions of services movement as those are deemed under Swiss substantive public policy.
Nevertheless, a survey conducted by KPMG for the ECA in 2013, showed that such agreements constitute vital means of liquidity and financial support for a lot of clubs, especially in South America and Southern Europe, and even though the legality of TPI prohibition was never challenged, this was not the case for TPO agreements. The argument purported by FIFA about third parties taking advantage over players does not seem very convincing since we are talking about professionals that should have the right to manage their affairs as they see fit. It is a totally different issue whether a TPO agreement constitutes an excessive commitment, which is up to national courts to decide on a case by case basis.
FIFA seems to understand that their current holistic approach is not beneficiary for the sector and as of June 2019, the definition of “third party” under FIFA RSTP is being narrowed to exclude players. This means that players will be able to own some of their economic rights and may perhaps be able to license them to third parties. Is this the return of TPO that many have been waiting for? While everyone applauds the FIFA initiative and its willingness to protect the football sector from any kind of manipulation, it might be possible that FIFA’s new, more flexible approach to TPO and TPI will benefit the players in future. We’ll have to wait and see…
Lex Sportiva 