Introduction: FIFA’s TPO ban and its compatibility with EU competition law.
Day 1: FIFA must regulate TPO, not ban it.
Day 2: Third-party entitlement to shares of transfer fees: problems and solutions
Day 3: The Impact of the TPO Ban on South American Football.
Day 4: Third Party Investment from a UK Perspective.
Editor’s note: Finally, the last blog of our
TPO ban Symposium has arrived! Due to unforeseen circumstances, FIFA had to
reconsider presenting its own views on the matter. However, FIFA advised us to
contact Prof. Dr. Christian
Duve to author the eagerly awaited blog on their behalf. Prof. Dr. Christian Duve is a lawyer
and partner with Freshfields Bruckhaus Deringer LLP and an honorary professor
at the University of Heidelberg. He has been a CAS arbitrator until 2014. Thus, as planned, we will conclude
this symposium with a post defending the compatibility of the TPO ban with EU
law. Many thanks to Prof. Dr. Duve for having accepted this last-minute
challenge!
This blog article outlines FIFA’s reasons to
introduce Art. 18ter FIFA Regulations
on the Status and Transfer of Players (RSTP) which bans third-party ownership
of players’ economic rights (TPO). In recent years, TPO was perceived as a
threat to the integrity of football competitions within the international
football community[i]
and has become an area of concern for FIFA. Nevertheless Art. 18ter RSTP has been heavily criticized
mainly by the proponents of TPO and a complaint has been filed with the
European Commission by the Spanish and the Portuguese Leagues for an alleged
violation of EU competition law. In the following it will be shown that such
criticism does not sufficiently take into consideration the specific
characteristics of the practice of TPO as well as football in general. It
explains the rationale behind Art. 18ter RSTP
which
- fosters the integrity of competition
which is a priority topic for FIFA,
- promotes the independence of clubs
by preventing third parties’ influence in sporting decisions,
- leads to stable squads,
- provides an opportunity for
investors to invest in the clubs rather than in single players,
- leads to financially healthier clubs.
Hence, with the introduction of Art. 18ter RSTP, FIFA pursues legitimate aims which justify the ban of the
TPO practice.
1.
FIFA’s
Way to Art. 18ter RSTP
TPO covers various situations in which a third party invests in the
economic rights of a player in order to receive a compensation with regard to a
future transfer. Whilst it is widely used in South America and in Southern
Europe as an alternative funding possibility, especially to finance investments
in sporting talent,[ii] TPO is explicitly
prohibited in England, France and Colombia.[iii]
The English ban on TPO was introduced in 2008 after the commotion caused by the
Tévez case in 2006 where the contract between Tévez and West Ham United
contained a provision giving a third party owner the right to decide on the
transfer and the transfer fee of the player without any right to veto by the
club.
FIFA has introduced a new rule Art. 18bis RSTP which prohibits clubs to enter into contracts that are
liable to jeopardise the club’s independence, its policies or the performance
of its teams and freedom of decision-making in employment and transfer-related
matters and came into force on 1 January 2008.[iv] However,
after having mandated two studies providing data and information on TPO in
several countries in 2013 and 2014, it was felt that Art. 18bis RSTP was not sufficient and did not address
this subject in an appropriate manner. Therefore FIFA decided to introduce a
new Art. 18ter RSTP as from 1 May
2015.
The main provision of Art. 18ter
RSTP reads:
1. 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. […]
It has been criticized that Art. 18ter
RSTP prevents and restricts competition in the market for capital investment in
football in a way that is not proportionate for attaining its legitimate
objective and that Art. 18ter RSTP is
therefore incompatible with EU Competition law. However, such criticism does
not sufficiently take into consideration the specific characteristics of football
as will be shown in this blog.
2.
The
Rationale of Art. 18ter RSTP
First and foremost, Art. 18ter
RSTP protects the integrity of the game itself by allowing for the necessary
freedom in the contractual relationship between a club and a player, to
determine whether and when the player is fielded as well as to decide
independently and for sporting reasons only whether and when they are
transferred.
Second, with regard to financial aspects of the clubs, critics
undervalue that Art. 18ter RSTP is
limited to a prohibition of an investment in a club’s players and does not in any
way limit an investment in the clubs themselves leading to financially
healthier clubs.
2.1
Art.
18ter RSTP Fosters the Integrity of
Football
Art. 18ter RSTP pursues
several legitimate aims, inter alia,
the integrity of competition (2.1.1.), the independence of clubs (2.1.2.) and
the stability of squads (2.1.3.).
2.1.1
Integrity
of Competition
The protection of the integrity of the game is not only one of FIFA’s
main objectives according to Art. 2 e) of the FIFA Statutes, it was also
recognized by the European Commission as a legitimate aim justifying
limitations on competition.
With regard to the UEFA rule on the “Integrity of the UEFA Club
competitions: Independence of clubs” establishing a ban on the ownership of several
clubs participating in the same competition by the same person or company, the
European Commission held that the ban was in any case a necessary rule to
ensure its legitimate aim of protecting the integrity of sporting competitions
by “protecting the uncertainty of the
results and giving the public the right perception as to the integrity of the […] competitions with a view to ensure their
proper functioning“.[v] Previously,
a Court of Arbitration for Sport (CAS) decision has also confirmed the validity
of this limitation and found that “when
commonly controlled clubs participate in the same competition, the «public’s
perception will be that there is a conflict of interest potentially affecting
the authenticity of results»” and that “that
ownership of multiple clubs competing in the same competition represents a
justified concern for a sports regulator and organizer”.[vi]
The danger of such conflicts of interests is, however, not limited to
club owners, it extends to investors, agents and coaches. Similar to the
situations in which a third party has interests in several clubs participating
in the same competition, conflicts of interests can also arise in cases where
third parties own shares in economic rights of several players of different
teams which are competing against each other.[vii]
Especially if a player in which a third party has an economic interest competes
against a club that is owned by the same investor, there is a significant
potential for such conflicts. Even within the same team, the risk of having the
same owner of a number of players presents a competitive integrity risk.[viii]
In any case and irrespective of an actual conflict, a conflict may at
least be perceived by the public in connection with TPO. Such perception leads
to a loss of confidence in the integrity of the competition and damages the
image of the sport. In the light of the increasing threat of match
manipulation, the involvement of third-party owners creates a danger to the
reputation of the competition that could weaken the football world. The
integrity of the game is therefore only guaranteed if players and clubs are not
influenced by third parties owning the players’ economic rights with the aim to
maximize their investment.[ix]
2.1.2
Independence
of Clubs
To ensure the independence of its Members’ affiliated clubs is one of
FIFA’s objectives pursuant to Art. 18 para. 2 of the FIFA Statutes. The second
TPO study found that “the spread of TPO
in the majority of the cases may be closely related to a partial takeover of
the clubs’ control by actors seeking primarily short-term profit and
speculating on the purchase and sale of economic rights, regardless of sporting
concerns”[x].
TPO potentially has an impact on player selection on the field of play and
creates complications for transfer negotiations as the clubs’ sporting
interests (e.g. of holding a player despite a lucrative offer or of letting a
player go without being offered a lucrative transfer fee) may conflict with
investors seeking a profitable return on their investment.
Even though interests may coincide if the investor speculates for a rise
in the player’s market value (e.g. Santos FC refusing Chelsea FC’s offer for
Neymar), one prominent example of conflicting interests is the Tévez case in
which West Ham United was deprived of any rights with regard to a future
transfer of the player. More recently, contract renewal negotiations with
Zambrano, a key player of Eintracht Frankfurt, are jeopardized by a third party
whose entitlement to future transfer compensation for Zambrano is to be bought
by Eintracht.[xi]
Overall, the more clubs are depending on TPO financing, the more
negotiating power third party investors have. The second TPO study mentions the
purchase of economic rights at preferential prices, pre-emptive rights on new
players or even greater influence on transfer policy.[xii] Moreover,
with players’ economic rights in the hands of various investors the
fragmentation of interests within a club increases. The independence of clubs
can only be guaranteed by preventing a partial takeover of the clubs’ control by
third parties especially with regard to transfers.
2.1.3
Stability
of Squads
The aforementioned clash of interests between investors speculating on
the purchase and sale of players’ economic rights and clubs reoccurs when it
comes to the frequency of transfers. Whereas an investor makes money out of
transfers, a club may be more interested in building a stable team and team
cohesion for sporting reasons. The Demographic Study of CIES in 2014 found that
“in general, the number of transfers
carried out by teams during the current season is at an all-time high” and
stated that “the increasing speculation
surrounding players’ transfers is also visible through the progressive drop in
the number of club-trained players, which has attained its lowest level since
2009”.[xiii] Pursuant to the same
study, players recruited from January 2013 onwards represented 41.3% of squads
on average (10.2 signings per club). At the same time, the best performing
clubs generally have the most stable squads. For instance, FC Barcelona has the most stable squad among
European top division teams. Its Players have been for 5.5 years in the first
team squad on average pursuant to the Demographic Study of CIES in 2014.[xiv]
Leagues and club representatives stressed in the Second TPO study that
the increasing gaps between clubs in terms of stability contribute to the
general decline in the competitive balance both at national and international
level.[xv] FIFA’s
overall objective to promote football, laid down in Art. 2 a) of the FIFA
Statutes, is endangered by such contractual instability caused by TPO.
2.2
Art.
18ter RSTP Provides an Incentive for
Investment in Clubs
Football clubs play the central role with regard to the aforementioned
legitimate aims. In order to achieve those objectives, appropriate financing
mechanisms are fundamental for football clubs. It is undisputed that clubs need
external sources. A solution that takes sufficiently into account the role of
the clubs and their needs can only be to finance clubs directly. By prohibiting
the TPO of single players’ economic rights, Art. 18ter RSTP creates an incentive for investors to invest in the clubs
themselves.
Admittedly, some football clubs have been affected by financial
difficulties and thus do not seem to be attractive for investors at first sight.
In this context, however, it must be taken into account that clubs that seek
regular access to talent by means of TPO are becoming even more and more
dependent on the regular injection of funds from external investors which may
lead to a “vicious circle of debt and
dependence”.[xvi]
With a club selling its players’ economic rights to third parties, the value of
the respective club’s assets decreases. As a result, it is even harder to find
potential investors interested in financing the club.[xvii] Therefore
TPO cannot be a sustainable financing option. Improving the overall financial
health of club football is a major concern for football associations. Therefore
the UEFA Financial Fair Play Regulations (FFP) were established to prevent
professional football clubs from excessive spending. Although the regulations
only contain disclosure requirements with regard to TPO, they were released in
view of a TPO ban.[xviii]
Overall, critics therefore have to take into account that Art. 18ter RSTP prohibits only one single form
of investment whilst it promotes at the same time investment in the clubs specifically
tailored to the overarching aim of fostering the integrity of the game.
3.
Conclusion
Art. 18bis
RSTP has already targeted the aforementioned legitimate aims. However, this
provision may be easily circumvented by inserting a clause into the TPO
agreement stating that it does not permit any exercise of influence by the
third party within the club’s employment and transfer-related matters, policies
or performance of its team. In practice, the engaged third parties will
interfere with a club’s sporting decisions in many cases despite such a
contractual clause. Interviewees in the second TPO study reported that in
practical terms, many thirdparty investors do influence the transfer of
players.[xix]
Therefore, there is a consensus among football stakeholders that TPO should be restricted.
The legitimate aims underlying Art. 18ter
RSTP can be achieved most effectively by a total ban of the TPO practice. Whereas
critics point to the lack of financing options caused by the prohibition of
TPO, this blog has argued that in the specific context of football competitions
the integrity of the game benefits from direct
investments in the clubs.
[i] Cp. FIFA Circular no. 1420 of 12 May 2014.
[ii] Third-party ownership of players’
economic rights, Part II., Centre de droit et d’économie du sport et Centre
international d’étude du sport, June 2014, p. 3.
[iii] Moreover, Poland has a rule which is
interpreted by its football association as prohibiting third parties to hold a
player’s economic rights with an exception for former clubs, cp. TPO study I,
p. 3, 17 et. seq.
[iv] Art. 18bis
RSTP, as introduced in 2008, reads:
1. No
club shall enter into a contract which enables any other party to that contract
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.
2. The
FIFA Disciplinary Committee may impose disciplinary measures on clubs that do
not observe the obligations set out in this article.
[v] European Commission, Rejection
Decision of 25 June 2002, Case COMP/37 806: ENIC/ UEFA, para. 47.
[vi] Arbitration CAS 98/200 AEK Athens
and SK Slavia Prague / Union of European Football
Associations
(UEFA), award of 20 August 1999, para. 48 (available at http://jurisprudence.tas-cas.org/sites/CaseLaw/Shared%20Documents/200.pdf).
[vii] Third-party ownership of players’
economic rights, Part II., Centre de droit et d’économie du sport et Centre
international d’étude du sport, June 2014, p.
9, 81.
[viii] Cp. Third-party ownership of players’ economic
rights, Part I., Centre international d’étude du sport, p. 33.
[ix] Third-party ownership of players’
economic rights, Part II., Centre de droit et d’économie du sport et Centre
international d’étude du sport, June 2014, p. 81 et. seq.
[x] Third-party ownership of players’
economic rights, Part II., Centre de droit et d’économie du sport et Centre
international d’étude du sport, June 2014, p. 8.
[xi] Available at: http://www.fr-online.de/eintracht-frankfurt/carlos-zambrano-eintracht-frankfurt-zambrano-deal-gefaehrdet,1473446,29843342.html.
[xii] Third-party ownership of players’ economic
rights, Part II., Centre de droit et d’économie du sport et Centre
international d’étude du sport, June 2014, p. 88.
[xiii] Available at
http://www.football-observatory.com/demographic-study-2014-now.
[xiv] Available at
http://www.football-observatory.com/demographic-study-2014-now.
[xv] Third-party ownership of players’
economic rights, Part II., Centre de droit et d’économie du sport et Centre
international d’étude du sport, June 2014, p. 78.
[xvi] Third-party ownership of players’
economic rights, Part II., Centre de droit et d’économie du sport et Centre
international d’étude du sport, June 2014, p. 9.
[xvii] Third-party ownership of players’
economic rights, Part II., Centre de droit et d’économie du sport et Centre
international d’étude du sport, June 2014, p. 88.
[xviii] Available at http://www.uefa.com/community/news/newsid=2064391.html.
[xix] Third-party ownership of players’
economic rights, Part II., Centre de droit et d’économie du sport et Centre
international d’étude du sport, June 2014, p. 88.