Yesterday, 18 May 2016, the licensing committee of the Dutch football
federation (KNVB) announced its decision to sanction FC Twente with relegation to
the Netherland’s second (and lowest) professional league. The press release also
included a link to a document outlining the reasons underlying the
decision. For those following the saga surrounding Dutch football club FC
Twente, an unconditional sanction by the licensing committee appeared to be
only a matter of time. Yet, it is the sanction itself, as well as its
reasoning, that will be the primary focus of this short blog.
Background
By way of reminder, FC Twente is the typical example of a professional
football club who had been “punching above its weight” for years. After taking
over the club in 2003, president Joop Munsterman and his fellow associates took
extreme financial risks in order to overtake clubs like PSV and Ajax as the
best club in the Netherlands. At first they were successful, but winning the
Dutch league in 2010 did not prove enough for the overambitious executives of FC
Twente. The club started spending more money than ever on the transfer marker
and new massive loans were taken to upgrade the stadium to Champion League
standards. Unfortunately, all this extra spending did not materialize in extra
sporting successes. Furthermore, the money derived from selling players was not
sufficient to service the debt incurred in the process.
Yet, the scope of FC Twente’s financial trouble did not become apparent
until November 2015. It was then that footballleaks
released the Economic Rights Participation Agreement (ERPA), or TPO
agreement, the club had signed with the Maltese investment company Doyen. The fine
prints of the ERPA, explained in our blog of 2 December, took everyone by surprise,
including the KNVB’s licensing committee. More than the precarious state of the
club’s finances, it was the fact that FC Twente had deliberately mislead the
KNVB regarding its relationship with Doyen that shocked the Dutch federation.[1]
As an immediate reaction to Twente’s omissions, on 15 December, the
licensing committee decided to conditionally withdraw FC Twente’s
license, unless the club collaborates fully to an independent internal
investigation into its structure and governance. Moreover, the licensing
committee sanctioned FC Twente with a €45,250 fine and a three-year exclusion
from participating in European competitions. The report of the internal
investigation, published on 1 March 2016, highlighted
the complete lack of transparency in transfer matters, i.e. all the transfers
and their financing were taken care of by vice-president Van der Laan without
the involvement of other board members. The ‘Additional Agreement’ signed with
Doyen, for example, was never mentioned in any of the board meetings. The
report also brought to light a fresh case of deliberate deceit of the licensing
committee in the transfer of Dusan Tadic to Southampton the summer of 2014. According
to FC Twente’s original disclosure to the KNVB, Tadic’s agent would receive
€1.8 million, which was 15% of the transfer amount. However, in January 2016, a
month after FC Twente promised full collaboration in the investigation, it
suddenly turned out that Tadic’s agent still had a claim of €1.8 million based
on a second agreement between him and the club regarding the same transfer. Not
only was this second agreement never notified to the licensing committee, it
was also never mentioned to the investigators during several meetings held in
December 2015.
The licensing committee’s decision
In a nutshell, the licensing committee decided to unconditionally
withdraw FC Twente’s license, but to simultaneously grant it a new license so
that it is permitted to play in the Dutch second professional league. The
committee held that:
“The Dutch licensing system was repeatedly,
deliberately and systematically undermined by FC Twente and the licensing
committee was repeatedly, intentionally and purposely misled. This behavior
undermines the functioning of the licensing system, contributes to an unfair
competition between professional football clubs, creates income for FC Twente
it would not have obtained under fair conditions (e.g. income from the selling
of TV rights) and leads to player transfers that possibly would not have taken
place had the club behaved ethically.”[2]
It added that it had already considered an unconditional withdrawal of
the license in December 2015, but decided against it because it needed more
information, such as an independent report. The licensing committee’s
conclusions drawn from the report was twofold. On the one hand, the licensing
committee praised the fact that FC Twente collaborated with the investigation,
that it promised to continue with the reorganization of the club’s governance
structure after a new license was
granted[3]
and that it will not ask for a UEFA license for the next three seasons.[4]
On the other hand, the licensing committee felt it needed to act as a
consequence of the new information regarding the Tadic transfer. The committee determined
that the “Doyen Gate” was not an isolated incident, but that it fitted in a pattern
of systematic unethical behavior by FC Twente’s management. Consequently, it
concluded that FC Twente had breached Article 9 of the Dutch license regulation, which requires a
license holder (i.e. a professional football club) to timely provide the
licensing committee all the relevant information and documents regarding the
club’s financial situation, transfer details, etc. Interestingly enough, the license
regulation offers only two sanction possibilities for breaching Article 9: A
fine of maximum €45.250 under Article 11(1); or the complete withdrawal of the license
under Article 12(2)c). The option to sanction a club with a relegation to the
lower divisions is currently not an option, as stipulated by the license
committee in paragraph 9 of its decision.
The lack of alternative options proved to be problematic for the
licensing committee because it found a fine of €45.250, given the
circumstances, disproportionately light, but the decision to withdraw the
license disproportionately heavy.[5] A
complete license withdrawal could realistically lead to the disappearance of FC
Twente, a football club with (as held by the licensing committee) an important
role in the Enschede region. “The licensing committee is aware that the effects
(of a collapse) could be disastrous for FC Twente, its employees, financers,
supporters and professional football in the region”.[6] With
this statement, the licensing committee is demonstrating that it is taking into
account inter alia the guarantee issued by the municipality of Enschede on a loan of €32
million for FC Twente in December 2015, under the
condition that the club would obtain a license. Without this loan, FC Twente
would have gone bankrupt. In the end, the licensing committee came up with the
rather pragmatic solution to withdraw unconditionally FC Twente’s license,
immediately followed by the granting of a new license to participate in the
second professional league, “in order to limit the disproportionate
consequences of the license withdrawal”.[7]
What makes the licensing committee’s decision worthy of debate is that
the regulations, strictly speaking, do not provide for the option to replace a
first division license with a second division license. The committee admits
that it has sought the limits of the licensing regulations, but defends its
decision by stating it is sanctioning FC Twente for its past actions in a
proportionate manner while taking into account the interests of the club and
its stakeholders.
Aftermath
In an official statement following the
decision, FC Twente declared that its currently studying all its options.
Although an appeal remains one of the possibilities, one could argue that it
might be too risky for FC Twente to do so. Concretely, an appeal would probably
lead to a sanction that actually exists under the regulations: A fine of
€45.250 or an unconditional withdrawal of a license. A more interesting issue
is whether any other professional club might consider questioning this
decision. Clubs who believe to have been placed in a disadvantageous position
as a result of FC Twente’s deliberate and systematic deceit, could argue that
the current sanction does not address the gravity of the misconduct. Moreover,
the fact that the sanction is not enshrined in the KNVB’s regulations, could
make it difficult for the licensing committee to uphold it in an appeal
procedure.
This decision puts the final nail in FC Twente’s coffin. The surprising
rise and brutal downfall of the Dutch club exemplifies the advantages and
downsides of TPO. This practice (and other financial tricks linked to the
transfer system) enabled Twente to leverage up and make the impossible possible
(winning the Eredivisie), but at the
same time strapped it with an unsustainable debt that has brought the club to
its knees. Basically, fans must choose between a few seconds (or years) of
glory on the one hand, or a sustainable future for their club on the other.
[1] FC Twente had not
disclosed to the KNVB an Annex, called ‘Additional Agreement’, to the ERPA that
insinuated far-reaching influence by Doyen in employment and transfer-related
matters, thereby breaching FIFA and KNVB Regulations.
[2] The licensing
committee’s decision, page 1.
[3] In this regard it
should be noted that four FC Twente board members resigned in March as a result
of the report. See “FC
Twente geeft toelichting op onderzoeksrapport Knüppe” (http://www.fctwente.nl/blog/2016/03/fc-twente-geeft-toelichting-onderzoeksrapport-knuppe/).
[4] The licensing
committee’s decision, page 3.
[5] Ibid., page 4.
[6] Ibid., page 5.
[7] Ibid.