Explaining third party ownership and how banning it affects football's crazy transfer market

TPO can be defined as an economic arrangement whereby a football club sells a percentage of a player’s future transfer value to a third party.

Arjun Krishnan April 30, 2015 11:32:03 IST
Explaining third party ownership and how banning it affects football's crazy transfer market

Third party ownership (TPO) is one of the most recent examples that highlight the extent of globalisation of football. Itself a highly nuanced concept that has evolved greatly since its inception in the 1990s, TPO has now become one of the most delicate and controversial issues in world football.

TPO can be defined as an economic arrangement whereby a football club sells a percentage of a player’s future transfer value to a third party. The third party’s investment facilitates the player’s overall growth, and in the event of a sale, the transfer fee received is shared in proportion to their respective 'holdings' in the player. Both the club and the investor benefit if the player is a success, while the financial burden is shared if the player fails.

Who is a Third party?

A third party is defined by FIFA 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." By this definition, third parties include all parties other than the buying and selling clubs — mostly companies and investment funds.

The objections to TPO:

1) There were concerns that this practice could affect public confidence in the integrity of football and the authenticity of match results. If, for instance, the same individual owns the rights of more than one player in the same league, there is a perceived conflict of interest, which UK based sports lawyer Daniel Geey argues is sufficient to damage the reputation of the game regardless of any actual conflict.

Explaining third party ownership and how banning it affects footballs crazy transfer market

Carlos Tevez after signing for Manchester City. Reuters

2) Third parties are usually business enterprises. Since the nature of their interest in football is purely economic, their desire to consistently maximise profits in the short run can pressure clubs into getting rid of players. A recent example of this problem was Marcos Rojo’s transfer to Manchester United last year following his refusal to train with Sporting. It is alleged that Doyen Sports, the investment fund that bought the rights to 75 percent of the proceeds from Rojo’s sale, pressured him into taking a hard-line stance when Manchester United started showing serious interest, thus forcing Sporting to sell him.

3) TPO follows the principle of relying on external financial aid to acquire players that clubs wouldn’t normally be able to afford, which is in direct conflict with the main objective of financial fair play (FFP) – to "live within your own means".

Why TPO is necessary:

1) That there is a growing gap between the top European football clubs and the rest of the world is undisputable. For football clubs at the lower end of the economic spectrum who cannot compete with the larger commercial and broadcasting revenues of the bigger teams, TPO is an important source of income. Banning it will only widen the disparity between the rich and the poor, and potentially threaten the ability of smaller clubs to survive.

2) TPO enhances competition in football by allowing smaller clubs to compete with greater equality against financially superior clubs. Jorge Mendes, who represents the likes of Cristiano Ronaldo, Jose Mourinho, and Radamel Falcao, believes banning TPO would kill all competition: "What do they want, to have a competition between only Real Madrid, Barcelona, Bayern Munich and Manchester United?"

3) One of the key arguments against the ban is that it restricts the freedom of trade and serves as an unfair barrier that prevents entry into the football business.

The Global Position on TPO:

When FIFA was forced to take a stand on this issue following the Tevez-Mascherano case, they approached it cautiously. Under Article 18bis (made effective January 2008) of the Regulations on the Status and Transfer of players, "No club shall enter into any 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."

The above rule does not specifically refer to the economic rights of players, and merely prohibits third parties from influencing the independent decision-making ability of a club (for example, having a say in where a player should be transferred). This provision was declared as binding at the national level, and was therefore required to be included in the regulations of all FIFA member nations.

Only three European countries have gone one step ahead and expressly banned this practice within their jurisdictions. England, France and Poland have taken initiatives to establish strict rules prohibiting all third party entitlements. Any club from these countries interested in buying a player with third party links, will have to satisfy their respective leagues that all other economic interests have been extinguished. Lazar Markovic's move from Benfica to Liverpool and Eliaquim Mangala's move from Porto to Manchester City involved the Premier League clubs buying out all third party economic interests in these players.

Meanwhile, since South American football is heavily dependent on this practice, football clubs and investors in this region openly avoid compliance. FIFA's jurisdiction applies only in international cases, and local laws govern domestic cases. FIFA, therefore, has no legal right to sanction domestic transfers of players under third party ownership. In Brazil for example, the assignment of players' economic rights are treated as a regular assignment of credit, which is legal under Brazilian civil law.

The ban and its implications:

To supplement the aforementioned Article (18bis), FIFA issued a circular on 22 December 2014 giving effect to Article 18ter, which imposes a global blanket ban on TPO, specifically prohibiting any entity that is not a club from being entitled to any economic benefits arising from player transfers.

While the ban comes into force on 1 May 2015, there is a transitional provision that allows existing TPO agreements (signed before 1st January) to run their natural course and those signed between 1 January and 31 April to be valid for a maximum duration of one year from the date of the agreement. This allows every club involved in TPO a reasonable timeframe within which to figure out a way to end their dependence on third parties.

The implications of this ban are still unclear. Some believe that it would drive the practice underground, under a different name, making it harder to trace and regulate. Others are optimistic, and believe this will help clubs to function sustainably in the long run. After weighing the pros and cons of TPO, its impact on football ultimately hinges on the degree to which it is regulated by the relevant governing bodies. The ideal solution wouldn't be to completely eradicate TPO, but to control it in a manner that keeps its negative aspects in check while maximising all its benefits.

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