The Complexities and Legal Implications of Third Party Ownership (TPO)
In this blog I will be assessing the complex nature of third party ownership, investment and influence in modern football. Whilst it has been banned since 2015, there is still a continuing problem that is difficult to find a solution to. Firstly, I will look at what third party ownership entails and the reasons behind it before outlining the legislation that now tries to govern it. However, I will then demonstrate previous examples of issues that have arisen despite these regulations and the continued problem for football, including those released on the football leaks website in 2015. It is important to understand that there are flaws in the laws for third party ownership in football but I will aim to suggest several ideas that may help to resolve the difficult issue.
What is the Third Party Ownership of Players?
The third party ownership (TPO) of players is an agreement involving private investors purchasing a percentage of a player’s economic rights. This can include an individual, a company or a fund that buys out these rights as an ‘investment’. This is done with the intention of economically benefiting once the player is moved on and transferred. This usually occurs when the player is transferred to Europe for a significant sum.
This was a popular, widespread policy used in South America, particularly in Argentinian and Brazilian clubs as they relied upon third party investors to be able to afford salaries and transfer fees that would otherwise be unaffordable. TPO provides a significant proportion of income for these clubs and allows them to compete with other clubs globally that are in a financially stronger position. By third party investors financially bolstering the clubs in question, they are alleviated of part of the monetary burdern of some of their players and their salaries.
The Legal Side
In 2001, third party influence (TPI) was banned by FIFA. This simply meant that any TPO investors of players were not allowed to have an involvement in the decision making surrounding the player. For example, they were unable to influence the selection of the player in the starting XI, the transfer of the player to another particular club and any other club policies.
There were questions over TPO undermining the integrity of the game and a worry that money that belonged to clubs was being taken out of the game by external investors. Former UEFA president Michel Platini and FIFA president Gianno Infantino had also both described it as a form of slavery, referencing the sense of ‘ownership’ and ‘objectification’ that players endured under TPO agreements. These factors led to FIFA forming an investigative group in 2007 to monitor the global state of affairs of TPO in global football. It wasn’t until 2015 that TPO was then banned by FIFA. Prior to this, the English FA had already taken the initiative and made TPO illegal in English football beginning in the 2008/09 season. This was following a significant issue surrounding Javier Mascherano and Carlos Tevez in their transfer to West Ham a couple of seasons before. I will analyse this example, alongside others in the next section.
This arguably put Premier League clubs at a significant disadvantage for UEFA competitions as they were unable to share the burden of any transfers or salaries with investors. Other clubs around Europe and the rest of the footballing world were able to reduce their own expenditure whilst TPO remained legal as they were financially supported by investors rather than carrying the burden themselves. Rather than having the desired effect of protecting the integrity and fairness of the game, this had the adverse impact of rendering a handicap upon the Premier League and English football. Transfer fees also became inflated as clubs tried to protect their assets and financial fair play books were monitored closely. This was the case for the seven years before FIFA finally brought the global ban on TPO into place after finalising their decision in 2014 following FC Twente’s offenses.
The first major instance where TPO became an issue was the aforementioned case involving Javier Macherano and Carlos Tevez after their move from Brazil to West Ham United in 2006 despite several major clubs expressing an interest in obtaining their signature. Their economic rights were part-owned by a London fund at the time who gained a healthy remuneration from the transfers. Back in 2006, this was legal under the legislation of both the FA and FIFA as long as there was no influence over the selection and transfer decisions that West Ham made.
It was discovered that there was a clause included in Tevez’s employment contract that stated that the Third Party Fund could choose to move the player on to any club and accept, reject and negotiate the transfer fee that would be paid in order to benefit themselves. This was adjudged as a blatant breach of the rule banning third parties having an influence over significant club policies. West Ham were also punished for withholding information from the FA. Eventually they were handed a £5.5million fine for the offense. Over the next two years the English FA created and implemented their new legislation banning TPO in response to the West Ham United case.
In 2015 FC Twente became one of the most infamous cases of TPO regulation offenses cited by the football leaks website. Football leaks released details of vast amounts of secret commissions in transfers, false billings and backdated contracts by the company, Doyen Sports Investment. The issues with FC Twente’s TPO agreement were dated in 2014. However, it was revealed that Doyen Sports Investment had been profiting, manipulating and exploiting TPO agreements for a much lengthier period. They were reported as investing over €100million into TPO of star players. Doyen Sports were the commercial managers for superstars like Neymar, David Beckham and Usain Bolt but they had also financially benefited from TPO agreements with players and transfers such as Radamel Falcao from Athletico Madrid to Monaco, Adnan Januzaj, David de Gea, Xavi and were remunerated over €10million for the transfer of Eliaquim Mangala from FC Porto to Manchester City in 2014.
In writing, it was stipulated that Doyen Sports Investment had no influence over any club policies where their players were contracted, as per the FIFA regulations. However, the football leaks website revealed a string of private message exchanges and conversations as well as details of transactions and contracts that revealed the substantial influence that Doyen Sports had over several clubs, their policies and their transfers. These included instances of bribery such as holding parties and making payments to persuade clubs to buy or sell their players that were under TPO of the company.
FC Twente bore the brunt of football’s response to the football leaks documents. As a result of their concealment of vital details and deliberately misleading FIFA and the Dutch football association, their professional license was revoked meaning they were banned from competing in the Dutch Eridivisie (First Division) for three full seasons and were fined €170,000. Other major European clubs were also named in the documents such as Seville, Real Madrid, Manchester City and Porto.
The Loopholes and Ways Around the Ban
Despite the ban in 2015, many TPO agreements still exist, many of which were in place before the ban and they have continued through it. However, the difference is that investors, agents and clubs have found alternative methods of working around the FIFA regulations regarding TPO that prevents them either being caught or avoids them technically breaching the rules. The problem is that there are several loopholes in the regulations and TPO investors have found ‘solutions’ to allow them to continue to benefit. They are summarised as follows:
1. TPO investors purchase shares in the club rather than a player directly. The ban on TPO doesn’t extend as far as clubs for the obvious reason that clubs rely on investment and financial support. Previous TPO investors of players have exchanged their rights to the player with the club and the contract will stipulate a certain remuneration, with interest, from the income the club receives from the player’s transfer. The issue with this is that the integrity of the game continues to be threatened due to the influence of TPO’s over the club and removing money from the game, especially when the same shareholder has players in two or more directly competing clubs.
- A slightly different strategy for this is to give a ‘loan’ to the club. The sum of the loan is due to be repaid to the full with the addition of an interest payment based upon the value of the transfer fee of the player once they are moved on. This is difficult for FIFA to regulate as it is not a feasible option for them to ban clubs from receiving loans from external supporters.
- Agents are sometimes accused of being responsible for finding other ways to avoid breaching the laws against TPO of their clients. They negotiate an increased level of remuneration and commission within their contract, related to their transfer fee which is then distributed proportionately to TPO investors. This again poses problems for those trying to regulate TPO as it is particularly difficult to prevent agents negotiating their commission from transfers of their own clients.
Are There Any Solutions?
Despite the ban on TPO of players being in place for over half a decade, there clearly remains an issue to be resolved as TPO, in one form or another, continues to threaten the integrity and fairness of the beautiful game. The key to the solution is an increase in the transparency of all global transfers and transactions that take place. In accordance with this, FIFA have developed and established a centralised ‘Clearing House’. To ensure the success and effectiveness of this clearing house requires all transactions within football to be passed through and documented by this system. This emphasises the necessity of transparency in mitigating the negative impact of third party ownership.
The presence of a clearing house to receive the exact details, financial and otherwise, of transactions between clubs, agents and players will allow for a greater ability of FIFA to monitor where money is being lost from football clubs and the game itself. This will hopefully mean that any continuing TPO agreements and infringements will be picked up on and eradicated. The additional impact of this is that it will prevent future TPO agreements from taking place, consequently deterring investors from pushing the boundaries and searching for loopholes in the regulations. A centralised clearing house positively impacts the footballing world and should go some way in solving a significant problem that FIFA faces in Third Party Ownership.
The benefits of a centralised FIFA clearing house could be extended even further. Currently this clearing house accounts for all international transfers. The next step in combatting the wrongful loss of money out of the game could be to introduce equivalent clearing houses on a national level. If each national football association adopted the same system this would further mitigate against TPO. In any walk of life and business there will always be slight loopholes and indefensible aspects of the system. So, whilst TPO may be possible through intricate methods around the regulations, the aim of football governing bodies and methods such as clearing houses is to minimise this. A further increase in transparency will always help to achieve this. Prioritising policies such as using clearing houses and agent regulation reforms, with the view of doing everything through a centralised system, is the best approach to creating a more transparent world of football transfers and transactions.