FIFA Third-Party Ownership Regulations – Definition of What is a Third-Party
This piece was published on The Student Lawyer in January 2020
Often assumptions are made regarding what a certain term in a law or regulation means, and which at first glance appears straightforward. At times though, cases arise that test the definitions and require further judicial clarification or guidance. The FIFA Regulations on the Status and Transfer of Players (RSTP), and in particular Article 18ter, which relates to the prohibition of Third-Party Ownership (TPO) of players is one such example of this.
What is TPO, and why is it banned?
TPO is a financial instrument that has been extensively used in South America and Europe, where a third party, usually a private investor or fund of some sort acquires either all or part of the economic rights of a professional football player for a fee from a club. In this situation, economic rights mean the value of any future transfers of those players. In simple terms, it means that the third party has a financial interest in the future transfer of a player’s registration.
Perhaps the most notable example of this in British football was when Carlos Tevez and Javier Mascherano signed for West Ham from Corinthians, a Brazilian club, despite their respective transfer rights being owned by multiple companies owned by Kia Joorabchan, a football agent. As a result, West Ham was eventually fined £5.5 million and had to pay a £30 million out-of-court settlement to Sheffield United (who were relegated from the Premier League at West Ham’s expense).
Historically, this practice has allowed smaller clubs to compete with bigger clubs by allowing them to purchase players for lower prices. FIFA has sought to ban this sort of arrangement due to the fact that it may allow the third parties to have a significant influence on sporting decisions such as team selection and player recruitment, and as such would jeopardise the sporting independence of clubs.
What does Art 18ter say?
FIFA originally sought to regulate against the practice through the introduction of Article 18bis RSTP in January 2008. This sought to prohibit clubs from entering into contracts that are liable to jeopardise the independence of clubs and their decision making in relation to employment and transfer-related matters. In 2015, the regulation was changed into what is now Article 18ter to extend the prohibition to prevent players from entering into TPO contracts, in what constituted a global ban on the practice. In this, it defined a ‘third-party’ as “a party other than the two clubs transferring a player from one to the other, or any previous club, with which the player has been registered.”
This would not include a club’s right to a “sell-on fee” from a club it sold a player to, as commonly found in many transfer agreements involving lower-league clubs when selling a player to a club in a higher division, such as when Raheem Sterling moved from QPR to Liverpool. Whereas a loan from a bank secured against a 20% assignment of a future transfer fee would be prohibited.
The ban on TPO was subject to a legal challenge in the Court of Arbitration for Sport (CAS) by RFC Seraing, a Belgian football club who challenged the ban on the basis that it breached EU law by restricting the free movement of capital. Despite this, CAS also said that Art 18ter was a proportionate method of achieving a legitimate aim by preserving contractual stability and the autonomy of clubs' recruitment policies. They also did not limit all types of investment in clubs.
The position as to who was considered a ‘third-party’ was somewhat unclear, as a literal reading of this would imply that a player is a third party in his own transfer. This position was tested in disciplinary cases brought against four clubs by FIFA; SV Werder Bremen (Germany), Panathinaikos FC (Greece), CSD Colo-Colo (Chile) and Club Universitario de Deportes (Peru). The FIFA Disciplinary Committee decided that the agreements were part of the remuneration due to the players under their employment relationship so that the players could not be considered a Third Party with respect to their own future transfers. Additionally, FIFA changed the definition to say “a party other than the player being transferred..” to further clarify the position.
What does this mean for football clubs?
This change in definition allows clubs an extra weapon in their negotiation arsenal, by allowing them to negotiate lower weekly salaries with a player, in exchange for a lump sum upon transfer. This will help clubs better manage their short term cash flow and keep wage expenses down. But this may present problems for agents who are only entitled to commissions from a player’s salary. An agent has a duty to negotiate the best deal for their client which may involve a cut of a transfer fee instead of a higher weekly wage, which means the agent would lose out on that commission. This may result in side agreements where the agent (or other party) receives a cut of the transfer fee, and increase this sort of ‘off-the-books’ agreement allowing TPO via the back-door. FIFA needs to take extra measures to ensure the reporting of any such interests to provide greater transparency in the process.