In this blog we continue unpacking Doyen’s TPO deals based on the
documents obtained via footballleaks. This time we focus on the battle between Doyen and
Sporting over the Rojo case, which raises different legal issues as the FC
Twente deals dealt with in our first blog.
The context: The free-fall of Sporting
Sporting Lisbon, or Sporting Club de Portugal as the club is officially
known, is a Portuguese club active in 44 different sports. Although the club
has the legal status of Sociedade Anónima
Desportiva, a specific form of public limited company, it also has over
130.000 club members, making it one of the biggest sports clubs in the world.
The professional football branch of Sporting is by far the most
important and famous part of the club, and with its 19 league titles in total,
it is a proud member of the big three cartel, with FC Porto and Benfica,
dominating Portuguese football. Yet, it has not won a league title since 2002.
The members of Sporting get to elect the club’s president. A typical
election campaign is akin to a political one with regard to status, media
coverage and campaign funds. In fact, former Sporting president Pedro Santana
Lopes went on to become the Prime Minister of Portugal in 2004-2005. In 2011,
the elections were hotly disputed with Godinho Lopes defeating his
main rival Bruno de Carvalho by only 300
votes. A request by De Carvalho to recount the votes was later dismissed,
causing local unrests and police intervention.
Under Godinho Lopes’ presidency, Sporting obtained very poor sporting
results, including a seventh place in the 2012/13 season, the worst ranking in
the club’s history. New elections were held in 2013 and won by Bruno de
Carvalho in a landslide. In addition to underwhelming results on the field, it
turned out that the financial health of the club off the field was also at
risk. Bruno de Carvalho faced a loss of €43 million in the 2012/13 season alone. This large financial debt was one of the
reasons why on 1 October 2014, the General Assembly approved the proposal by the new Board of Directors to press liability charges
against Godinho Lopes for breaching due diligence duties.
In the midst of the financial and managerial chaos surrounding Sporting,
one dispute stands out as being relevant to our series of blogs on Doyen’s TPO
deals. Faced with financial difficulties, Godinho Lopes had recourse to Doyen
Sport to finance the recruitment of a number of players, amongst them Marco
Rojo, an Argentine defender coming from Spartak Moscow in 2012. After two years
at the club, the player was transferred against a healthy €20 million fee to
Manchester United in 2014. However, the club staunchly refused to pay out the
share of the economic rights owned by Doyen. Thus, giving way to a legal
dispute on which we will put the spotlight in this blog. Although the case is
still pending in front of CAS, several documents related to it were published
on the footballleaks website.
The facts: the Rojo case
Before analysing the fine prints of the Economic Rights Participation
Agreement (ERPA) between Doyen and Sporting concerning the economic rights of
Rojo, a bit of background on the player and his career is needed. Marcos Rojo is
an Argentine professional football player who appeared on the elite football
scene at a young age. In 2009, by the age of 19, he won the Copa Libertadores with
his side Estudiantes de la Plata, and in 2011, aged 21, he was a regular
starter for the Argentinian national team during the Copa America. Sporting,
under Godinho’s presidency, signed Rojo from Spartak Moscow for €5.43 million
in July 2012. In
order to finance the signing of Rojo, Sporting needed fresh money, thus it
turned to Doyen as a “last resort initiative”.
As provided by the ERPA, the Maltese investment company paid € 3 million and
obtained in return 75% of Rojo’s Economic rights. The agreement includes
similar provisions to the ones outlined in detail in our FC Twente blog. Notably, in the case Sporting would receive a transfer offer for Rojo
of more than €8 million, Doyen could request that the club accept the offer or
pay an amount equivalent to 75% of the offer to buy back the rights of the
player from the fund. Moreover, in the case the club was to renew the contract
of the player or failed to avoid that his contract runs out, it was bound to
pay a minimum fee of €4.2 million (in case of renewal, Doyen could also chose
to keep its share of the player’s economic rights).
Rojo’s outstanding 2014 World Cup (he was selected for the World
Cup All-Star Team) triggered interest from English Premier League clubs,
most notably Southampton and Manchester United. Both sides were keen on signing
him in the summer of 2014, but Sporting president De Carvalho had no intention
of selling him. According to De Carvalho, Rojo was key to the club’s ambition of becoming Portuguese champion. Sporting
claimed that Doyen, via its director Nelio Lucas, was “promoting and forcing
this transfer” and, thus, “violating his duty to respect Sporting’s
independence in transfer related matters”.
De Carvalho maintained that Doyen’s influence breached then art.18bis of the FIFA RSTP. In retaliation against Doyen’s perceived influence, Sporting refused
to pay to Doyen the agreed 75% share of the proceeds from the transfer of Rojo
to Manchester United. Instead, it argued that Doyen had breached its contractual
duties and declared the ERPA (and the guarantees attached to it) null and void.
Nonetheless, the club did transfer back to Doyen the €3 million it invested at
the outset. Hence, Sporting put Doyen’s contractual edifice to the test and Doyen
was forced to go to court (and more precisely to the Court of Arbitration for
Sport) to try to enforce its rights under the ERPA agreement.
The showdown: The CAS as ultimate arbiter of the
legality of Doyen’s TPO contracts
The ERPA signed by Doyen and Sporting contains both a clause defining
Swiss law as the law applicable to the contract and the CAS as the jurisdiction
competent to deal with disputes arising out of the contract.
Henceforth, it was mandatory for Doyen to turn to the CAS as soon as it became obvious that it would not recoup the 75%
it believes it was owed on Rojo’s transfer. The dispute was finally heard by a
CAS panel in June of this year and the final decision is still, as far as we
know, pending (see the outstanding coverage of the issue by Tariq Panja from Bloomberg,
here and here). The case is of great importance to Doyen, if the CAS finds that
Doyen’s ERPA is contrary to Swiss law, this finding will most likely apply to each
of Doyen’s TPO deals that are based on a similar model and dramatically weaken its
contractual position. The good news for Doyen is that it probably has only
relatively few ERPA’s still in place (for example FC Twente and Doyen agreed to
put an end to their agreement), as the FIFA ban should have blocked it from
entering into new agreements.
This case is not about former article 18bis of the FIFA RSTP, as is
often misunderstood. This would come only into play if FIFA were to sanction
Sporting for having had recourse to an ERPA with Doyen, an issue that might
still arise and a configuration potentially already at play in the FC Twente case. The Rojo dispute between Sporting and Doyen, however, is of a purely
contractual nature. It is only about whether Doyen’s TPO deals are compatible
with Swiss civil law. In this regard, footballleaks
has recently published a very interesting document: a confidential report by a Swiss law firm on the legality of Doyen’s Model ERPA in light of
Swiss law. This report raises a number of thorny legal issues that the CAS will
have to weigh on.
The ERPA between Doyen and Sporting must abide by the requirements of
Swiss civil law. In general, the Swiss Civil Code is favourable to contractual
autonomy, yet there are some restrictions to the freedom of the parties. To be
valid, an agreement should not be contrary to the bonos mores. In other words, the moral values or ethical principles
supported by the Swiss legal system. Indeed, as foreseen by Art. 20.1 of the
Swiss Code of Obligations, a “contract is void if its terms are impossible,
unlawful or immoral”.
The whole Rojo case in front
of the CAS is likely to hang on the determination whether Doyen’s ERPA model is
immoral or not from the Swiss perspective. Immorality is constituted especially
if the contract introduces a serious imbalance between the obligations of the
parties. The Swiss law firm mandated by Doyen doubted the signature of an ERPA
would create such imbalance, simply because “both the FUND [Doyen] and the Club
have rights and obligations according to the Agreement”.
This falls a bit short. As we have seen, Doyen uses the leverage offered by the
financial difficulties of clubs (FC Twente or Sporting) to impose very harsh
contractual conditions and high interest rates. This harshness is clearly
acknowledged in the ERPA. For example, clause 10.6 indicates that Sporting “is
conscious of the harshness and the severity of the consequences of clauses 10.4
and 10.5”. Whether the embedded contractual imbalance in the ERPA is sufficient
to be deemed immoral under Swiss law is for the CAS to decide, but it is not a
possibility that should be discarded lightly. Moreover, this potential
immorality is also supported by the willingness of FIFA to ban TPO as it points
at the conflicts of interest and integrity risks arising out of its use.
The ERPA could also be contrary to art. 27.2 of the Swiss Civil Code,
which provides that: “No person may surrender his or her freedom or restrict
the use of it to a degree which violates the law or public morals”. According
to the Swiss law firm contracted by Doyen, this is especially the case if a
legal entity’s “economic freedom is restricted in such a way that its economic
existence is in danger”.
It also argued that, “the undertakings of the Club cannot in principle be
considered excessive”, as “there is no
obvious disparity between the considerations of the Parties”.
Here again, the arguments provided by Doyen’s law firm are feeble at best. In
fact, the contractual imbalance is openly acknowledged in Doyen’s own contract.
The economic freedom of Sporting (or FC Twente for that matter) is so
drastically reduced that a club is forced into selling its best players at
Those players are at the heart of the “economic existence” of a club. In fact,
the fate of FC Twente illustrates how the loss of its best players led to the
club facing financial and sporting bankruptcy.
Finally, Sporting is also likely to have argued that Doyen was in breach
of its contractual duties. Clause 14 of the ERPA stipulates that Doyen
“recognizes that the Club is an independent entity in so far as the Club’s
employment and transfer-related matters are concerned and [Doyen] shall not,
either though this Agreement or otherwise, seek to exert influence over these
matters […]”. The Club claimed in its termination letter of the ERPA that
“Doyen has seriously and irremediably violated its obligations of non-influence
in Sporting transfer policy […] which constitutes a material breach of the
agreement”. Swiss contract law may entail the right for Sporting to refuse to
execute its part of the deal in case of breach of contract by Doyen. In that
regard, Sporting would have had to factually demonstrate the faulty character
of Doyen’s intervention in Rojo’s transfer.
It is certainly not a given that the CAS will consider Doyen’s ERPA
contrary to Swiss law or for Doyen to be in breach of its contractual duties,
but there are credible legal arguments that point in both directions. Surely, the
hubris of the management of Sporting and FC Twente is chiefly responsible for
the terrible deals closed with Doyen. Yet, Doyen leveraged their dire financial
situations and irrational ambitions to strong-arm them into one-sided
agreements that are imposing unfair terms on the clubs. Doyen takes on very
little risk: If a player fails to become a star, the fund will recoup its
investment plus very reasonable interests (unless the club is bankrupt); if a
player breaks through, it will pocket the jackpot. The fund is a true vulture
fund geared to the football industry. It buys under-priced assets (economic
rights attached to players) in fire sales and hopes for a huge profit.
We will hear soon from the CAS whether it deems this practice legal
under Swiss law. In any event, FIFA has decided to ban TPO outright, raising
the opposite question of the compatibility of the ban with EU law. This will be
the subject of our final blog.