Third Party Investment in Football Players: The Basics, the Detail and Recent Developments
This was first published on The Secret Footballer Website here and with thanks to Andrew Visnovsky for his assistance in researching the below.
What does it all mean?
Third Party Investment (TPI) in the football industry is where a football club does not own, or is not entitled to, 100% of the future transfer value of a player that is registered to play for that team. There are numerous models for third party player agreements but the basic premise is that companies, businesses and/or individuals provide football clubs or players with money in return for owning a percentage of a player’s future transfer value. This transfer value is also commonly referred to as a player’s economic rights. There are instances where entities will act as speculators by purchasing a percentage share in a player directly from a club in return for a lump sum that the club can then use as it wishes.
It's illegal in the Premier League right?
The Premier League, Football League, Football Association, the Polish and French leagues have all brought in TPI bans. The original ban in the Premier League came as a result of the Tevez affair where a third party owner had the contractual right to force West Ham to sell the player if a suitable bid was received. This was against the current regulations that were in place at the time. Subsequently, the Premier League tightened its regulations to prohibit any type of TPI. Other leagues followed as a result.
A common misconception throughout and after the Tevez case was that any third party player owner would have been in breach of the Premier League rules. This was not the case. It was the clause giving the owners of Tevez influence over West Ham which incurred the Premier League’s wrath (plus the non-disclosure of the agreement itself). It was for this reason that West Ham was judged to have breached the old Premier League rule Rule U18 and fined £5.5 million by the Premier League.
At the time, there was therefore no express clause prohibiting TPI; only the act of influencing a club’s policies or performance was forbidden. Tevez’s third party contract contained a clause giving exclusive power to the third party owners, MSI and Just Sports, to facilitate the transfer of the player. West Ham did not have a veto over this right and such a stipulation breached the above Premier League rule as it meant that outside parties had material influence over the decision making of West Ham.
The Premier League decided that from the beginning of the 2008/9 season an absolute ban on third party ownership was required. A spokesman stated:
“The clubs decided that third-party ownership was something they did not want to see. It raises too many issues over the integrity of competition, the development of young players and the potential impact on the football pyramid. It was felt the Premier League was in a position to take a stand on this. No one wants to see what has happened to club football in South America repeated over here”
Why is it such a problem?
As the Premier League spokesman explained above, their major concerns related to integrity, young player development and money flowing out of the game. An internal FIFA report recently concluded that TPI trapped clubs in a “vicious cycle of debt and dependence” and "posed risks to players and to the integrity of the game".The main concerns about TPI include:
Conflicts of interests can potentially occur between investors, club owners, agents and coaches. For example, what if the owner of Club A also owns an economic stake in Player B playing against his club? What if an agent of a manager who buys TPI players is also an advisor of a TPI fund? Regardless of any actual conflict, there is certainly a perceived conflict which may damage the image of the game, public confidence in integrity of competitions and even lead to potential match-fixing or insider trading concerns. Questions continue to be asked over the transparency of the TPI funds and what role they have, if any, in influencing clubs.
Clubs become reliant on such funding which in turn leads to dependence on external owners to continue to assist in such financing arrangements. As such, TPI encourages short-term profit making with economic owners looking to the club to sell its players to realise their 'asset' ahead of purely on-field sporting concerns. The consequence is that the rapid turnover of TPI players at certain clubs means fans become less loyal to the players who know they will be transferred when the right offer is received. Clubs are seen as a short term 'speculation tools' with the result that money leaves the football family.
Why is the practice important and necessary?
To counter the arguments set out above, the following points demonstrate are why TPI is so vital for many clubs around the world.
1. A growing number of clubs cannot compete with the larger commercial and broadcasting deals of the bigger European leagues. Clubs in so-called smaller European leagues, for example, need to leverage their assets and find innovative ways to find competitive advantage for playing against teams in the Champions League.
2. Purchasing players is an inherently risky business. Clubs with less money to spend would therefore usually be more risk-averse when having to invest heavily in transfers. One way of limiting such risk, is to share the financial burden. Therefore contracts are entered into between economic owners and clubs to either help the club with the purchase price for a talented individual or free up capital and 'monetise' a current players value whilst he still remains at the club. In either event, the club benefits from external finance that cushions the club's position if the player is not a world beater. Both the club and the fund then benefit if the player is a success through a large transfer fee received that is shared according to the contract.
3. There are various ways to alleviate conflict of interest, integrity and transparency issues. Instead of banning TPI, many believe regulation through a transparent approach to TPI by disclosing a register of interests would alleviate a number of concerns as well as making TPI contracts available to FIFA/UEFA to ensure 'material influence' issues are correctly dealt with in the TPI contracts.
With UEFA and FIFA looking to ban players who are third party owned from playing in their club tournaments, many are questioning whether regulation of the practice rather than an outright ban would be preferable. In addition, some believe that it is not a ban but total transparency of the arrangements that is required. This could even be expanded to include a list of the owners of such transfer rights. Such transparency could allow the football family to scrutinise any potential conflicts of interest between, for example, those who own the economic rights of a player and those who also own a stake in a football club.
Why is the practice so widespread across Southern Europe and South America?
The probable reason why FIFA may have difficulty implementing an outright ban is because in countries like Spain and Portugal and especially South America TPI is prevalent. Outlawing such a practice would be both politically and practically difficult. This is in contrast to the Football Association, the Premier League and the Football League prohibition position. The rationale is that it is evidently easier for national associations to implement TPI bans (with narrower scope), than it would be for FIFA.
Within the last year, FIFA, UEFA and the global players union FIFPro have explained that TPI should be banned. Whether this means in the future that such activity will be more tightly regulated or actually banned is the billion dollar question. FIFA General Secretary Jerome Valcke explained it would be “three or four years” before TPI was banned outright, with a final decision on the timescale to be made public by next March at the latest.
What's the current state of play?
Current FIFA Rule Article 18bis of FIFA’s Rules on the Status and Transfer of Players states that: “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.” This is not a specific ban on TPI but a ban on a third party owner from influencing a club’s employment or transfer related matters.UEFA and FIFA have made public statements in the last year concerning their aim to outlaw TPI. As recently as September FIFA's President Sepp Blatter explained that:
"We took a firm decision that [TPI] should be banned but it cannot be banned immediately there will be a transitional period".
FIFA has recently set up a working group to address the topic of TPI. Interestingly, in their press release there was no explicit mention of a ban but "to analyse all possible regulatory options in relation to this complex practice and to make preliminary suggestions". Therefore until recommendations are made to the FIFA Executive Committee early next year it is not entirely clear whether FIFA will decide to regulate the practice or ban it entirely.
Is Falcao still third party owned as he was when at Porto?
Any player registered to play in the Premier League or Football League cannot be third party owned by a TPI company. The Premier League and Football League have banned such a practice after the Tevez case. It means that the buying Premier League/Football League club has to satisfy the football authorities that all other economic interests have been extinguished. This occurred over the summer when TPI players Markovic or Mangala were transferred to Liverpool and Manchester City respectively. Premier League/Football League clubs undertake to the football authorities that it is the only entity that owns the player's economic rights and only then can the transfer can be completed meaning the club can register the player. My understanding is that Falcao had a TPI contract whilst he was at Porto but as the French league also prohibits TPI, when Monaco bought him, they too had to extinguish any third party rights. As such, when he was then loaned to Manchester United this summer, his TPI rights had already been extinguished so there were no major complications with his Premier League registration.