Third Party Ownership
Introduction
Until FIFA banned third party ownership of player’s economic rights (TPO) in December 2014, TPO was a common financial model primarily used by clubs that had limited financial muscles compared to more wealthy clubs, and therefore needed to rely on external investors in order to compete with the wealthy clubs in the transfer market. A typical TPO agreement involved an investor that would provide a football club with money, either in connection with a transfer or when the club was generally in short of money, in return for owning a percentage of a particular player’s future transfer value. When the player was sold to a new club, the transfer sum would be split between the club and the investor based on the agreement between the two. From the investors’ point of view, the business model is based on a belief that the player will develop his football skills and subsequently lead to a rise in his market value and future transfer fee.
TPI and TPO in a nutshell
Third party influence (TPI) was partly banned by FIFA in the 2001 edition of RSTP. Art. 17.2 of the first edition states that “Entitlement to compensation cannot be assigned to a third party”. Although the provision is limited to compensation for breaches of a contract without just cause, it shows that FIFA had been sceptical to give third parties influence over transfer or contract related compensation. The TPI ban was later adjusted in 2008 with art. 18bis, Third-party influence on clubs. The article states that no club shall enter into a contract which enables the clubs or a third party to acquire the ability to influence in employment and transfer-related matters, and that breaches of the ban could lead to disciplinary measures from the FIFA Disciplinary Committee. The ban on TPI seldom led to investigations from FIFA, although it was rather common that agreements between clubs and investors facilitated the possibility of investors influencing player transfers.
Particularly in Southern America and in Southern Europe, the use of TPI/TPO agreements has been a central part of a number of clubs’ transfer policy. FC Porto is one of the clubs that has used TPO in a successful part of their transfer policy. The club has bought a number of talented players, mostly from South America, with financial support from investors. The players have been developed and then used in UEFA Champions League and UEFA Europa League, attracting the interest of clubs that are willing to pay large transfer sums to secure these players. One example of players that have been involved in these kind of transfers are Radamel Falcao who Porto bought from River Plate in 2009 for EUR 5,5M and who was sold two years later for EUR 40 M. Another example is Hulk, who Porto bought from Tokyo Verdy for EUR 5,5 M in 2008, and sold for EUR 40M in 2012.
The widespread use of TPO agreements, particularly in South America and in southern Europe, led to concerns regarding conflict of interest for persons with shares in the players’ economic rights, that at the same time had formal or informal influence over the club or player in question. There were also concerns that clubs become reliant on such investment, and that the investors would profit on successful players rather than the clubs themselves. In 2006 Carlos Tevez and Javier Mascherano, both 22-years-old Argentina internationals and two of the most attractive players at the time, joined mediocre Premier League club West Ham despite interest from some of the biggest clubs in the world. The transfers must be seen in connection with the investment companies that owned the two players’ economic rights.
The fight against third party investors was stepped up in December 2014, when FIFA announced that they would ban Third Party Ownership (TPO) as from May 2015, introducing art. 18ter. However, existing TPO agreements were allowed to continue until they expired. The article states that “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.”
The inclusion of art. 18ter in the FIFA RSTP led to a discussion regarding who was considered as a third party. The definition of “third party” in RSTP could be understood to include the Player as a “third party”, if he had agreed to a clause in his contract that guaranteed him a percentage of his future transfer fee. The FIFA Disciplinary Committee was later presented with such cases and found that the players could not be considered a third party with respect to their own future transfers. These decisions by the FIFA Disciplinary Committee clarified the position of the Player in his own transfer with regards to TPO, and led FIFA adjusting the definition of “third party” by issuing a new version of the FIFA RSTP, in force as of 1 June 2019. The new definition established that a third-party is “a party other than the player being transferred, the two clubs transferring the player from one to the other, or any previous club, with which the player has been registered.”
Breaches of the ban on TPI and TPO
Following the ban on TPO in 2014, FIFA has stepped up its investigation of possible breaches of the TPI and TPO provisions, helped by documents published by football leaks. The FIFA Disciplinary Committee sanctioned, Santos Futebol Clube of Brazil and Sevilla FC of Spain with fines for breaching art. 18bis. Club Truidense of Belgium and FC Twente of the Netherlands were issued fines for breaching art. 18bis and 18ter. In the latter case FC Twente had entered into TPO agreements with football investment company Doyen Sports. FIFA stated that “the club was found to be liable for entering into contracts that enabled a third party to influence the club in employment and transfer-related matters, failing to upload a TPO agreement into the library in TMS.”. It can be added that the Dutch football association subsequently looked into other agreements between FC Twente and Doyen Sports, which led to FC Twente losing its license to play in the Dutch top division.
Doyen Sports was also in centre of attention in disciplinary proceedings against Belgium club FC Seraing. The FIFA Disciplinary Committee sanctioned the club with a transfer ban and fine of CHF 150,000 for breaches relating to TPO and TPI provisions. The Disciplinary Committee found that “FC Seraing had sold part of the economic rights of several players to a third party and by having entered into contracts that enabled the third party to have influence on the club’s independence and policies in transfer-related matters.”. CAS upheld the decision, although it reduced the transfer ban.
FIFA has started a process of establishing a clearing house as a part of its goal to increase transparency. If, or when, such a clearing house is established, all payments related to a transfer will go through FIFA, something that will make it more difficult to create creative agreements that maintain TPO agreements.
