Third Party Investment Update: Players Can Own their Transfer Rights
By Daniel Geey and Alex Harvey
Introduction
It was a pleasure to talk alongside Nick De Marco recently at the RFEF FIFA Legal Congress in Madrid. We discussed the current state of play regarding Third Party Investment (TPI), particularly bearing in mind the recent TPI amendment to the FIFA Regulations on the Status and Transfer of Players (RSTP).
Current State of Play
In 2015, FIFA banned the practice of a third party (usually a funding company) owning a stake in the future transfer value of a player[1]. Up until the recent amendment, the question remained as to whether a player was classed as a ‘third party’ or not. The position set out by FIFA is now clear and will likely have a significant impact on players, clubs and agents alike.In brief, the amendment permits a player to own a percentage in his or her future transfer fee[2]. So how exactly does it work? Players (through their agents) can now request that they receive a certain percentage of their future transfer fee. Say a player negotiates a 20% future transfer fee clause, if their club subsequently sells them for £20m, the player would in theory be entitled to 20% of that transfer fee – i.e. £4m. In practice, the total amount due to the player may be lower because their percentage is often based on the net amount received by the club (after for example sell on clause payments due to previous clubs).
The Detail
Such clauses will be an additional leverage in negotiations when the commercial terms of a deal are being discussed and agreed upon. They may be agreed to by clubs, perhaps in exchange for a lower weekly wage, loyalty bonus or signing-on fee; or even to incentivise a star player to sign in addition to a lucrative employment package. Where such a clause is agreed, the player will want to ensure there is also a release clause, such that the club is required to accept an offer over a certain amount. The club will know that a percentage of any transfer fee will be due to the player, and a release clause prevents the club holding out for an unrealistic transfer fee to cover that cost.
Some, however, see the potential for conflicting interests between players and their agents. An agent’s commission is typically based on their player's weekly wage; so they will naturally want to ensure their client’s weekly wage is as high as possible. This, on the face of it, is no bad thing for the player. However, where players wish to negotiate a future transfer fee, they may be willing to forsake a higher weekly wage in return - leaving their agent commissioning off a lower wage.
Although there are clear upsides for players, it puts them in a potentially vulnerable position. If a player has a future transfer percentage clause, various third parties will want to benefit from that arrangement and ‘persuade/request/demand’ the player enters into a separate side agreement whereby, in exchange for money or services, that party may earn a part of the player’s future transfer fee percentage. This has the potential indirect effect of reintroducing TPI ‘through the backdoor’. Importantly, because such third parties aren’t regulated by the football bodies, it also means that it is the player (if such agreements come to light) that will suffer by way of sanctions, not the third party.
In addition, the mechanics of how a player may receive his or her percentage of an agreed transfer fee are not entirely clear. Usually, as set out in my book Done Deal, transfer fees are paid in instalments; sometimes spread out over 2-4 years. Whilst a player may be entitled to say 20% of a £20m transfer fee (£4m), if the fee is paid by the buying club in four yearly instalments, the player will be waiting four years to receive his full contractual entitlement. Therefore, just as selling clubs are sometimes forward-funding future transfer fee instalments, it may be that players can either 'piggy-back’ off club funding arrangements or independently forward-fund the percentage transfer fee that they are due.
It’s absolutely vital that players are given robust advice about the risks of having such clauses in their employment contracts and, perhaps more importantly, the consequences of entering into contracts giving away such future monies. FIFA and the national associations will need to consider how best to regulate to cover such eventualities. It may be as part of any FIFA TMS transaction or domestic equivalent system that players must declare that they are not providing any future transfer percentage they are due to a third party. Nevertheless, there is always a risk that the player will not understand the significance of such a declaration, which may mean trouble down the line.
Conclusion
Players are once again in astrong position in club negotiations to request and receive future transfer fees.Nonetheless, it’s imperative that they are fully versed about the current TPIban so that they understand the consequences of any ‘side deals’ they arerequested or persuaded to sign. Such private agreements are a significant riskto the player and would likely lead to sanctions being imposed (perhapsincluding playing bans or significant fines). With such opportunity comes risk.Players need to beware.
[1]Article 18ter “No club or player shall enter into an agreement with a thirdparty whereby a third party is being entitled to participate, either in full orin part, in compensation payable in relation to the future transfer of a playerfrom one club to another, or is being assigned any rights in relation to afuture transfer or transfer compensation.”
[2]Previous definition:
“Third party: a party other than the two clubstransferring a player from one to the other, or any previous club, with whichthe player has been registered.”
New Definition 14 (RSTP June 2019 Ed.)
“Third party: a party other than the player beingtransferred, the two clubs transferring the player from one to the other, orany previous club, with which the player has been registered.”