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TPO: the new FIFA regulations (as at 01/05/2015) and their consequences (Joëlle Monlouis, lawyer) Reg – Paris – Thursday 30 April 2015 – Essential no. 40649 “TPO is used by clubs as a means of financing, either through a loan or through co-ownership, particularly in South America and, in Europe, principally in Spain and Portugal. Although risky, the scale of the returns makes it a highly lucrative business for funds which own numerous promising young players,” says Joëlle Monlouis, a lawyer specialising in business law and sports law, in an analysis for News Tank on 30/04/2015. “At the FIFA Executive Committee meeting on 25 and 26/09/2014, it was decided to prohibit third-party ownership of players’ economic rights ‘in order to protect the integrity of football and players’. The new provisions were approved by the Executive Committee on 18 and 19/12/2014 and come into force on 01/05/2015,” adds Joëlle Monlouis, who examines the new regulations and their consequences. TPO consists of a third party, other than the club (1), owning part of a player’s economic rights (2). There is no statutory or regulatory definition of “economic rights”. According to case law and legal commentary, these rights correspond to the financial value of the so-called “federative” rights arising from a licence held by a player who is bound to a club by an employment contract and which enable the player to participate in competitions organised by the association to which the player belongs. “No statutory or regulatory definition of ‘economic rights’” “A practice originating in South America” This practice emerged in South America during the 1990s (3) and subsequently spread to Europe in the late 2000s. According to a 2013 study by KPMG, the European TPO market was worth just over €1 billion. By comparison, transfers in Europe in the 2010–11 season totalled just over €3 billion (4). What is TPO? 1. Legally, TPO is a commercial contract concerning a player’s economic rights. These rights resemble a receivable, an asset on a club’s balance sheet which the club decides to market to a third party. This asset corresponds to each club’s ability to terminate its player’s contract (5) before its expiry by negotiating the price of its agreement with other clubs. “These rights resemble a receivable” The receivable is therefore contingent, since it depends both on the player’s agreement to a transfer and on the acquiring club’s agreement to engage the player at the transfer fee agreed with the current club. As security, TPO is a transaction whereby a third party lends money to a club and, to secure repayment, the club grants that party a right over the future transfer receivable. In this situation, the third party’s primary purpose is not to own a player’s economic rights. When the transfer takes place, the lender may enforce its security and obtain repayment either from the borrowing club or directly from the acquiring club. As an assignment, TPO is a transaction whereby a third-party investor acquires from a club the economic rights attached to a player. In this situation, the third party becomes a co-owner of the player’s economic rights. When the player is transferred, the investor will assert its rights to obtain payment of its share of those economic rights. In practice, TPO as an assignment enables a club with a small budget to co-own a player with an investment fund and thus acquire, for €4 million, a player worth, for example, €10 million, with the balance paid by the investment fund. 2. Clubs use this technique as a means of financing, either through a loan or through co-ownership, particularly in South America (Brazil, Argentina, etc.) and, in Europe, principally in Spain and Portugal. “The Mangala example” Although risky, the scale of the returns makes it a highly lucrative business for funds which own numerous promising young players. The widely publicised transfer of French player Eliaquim Mangala in summer 2014, for example, enabled the Doyen Sports fund to pocket €18 million, three years after investing €2.6 million. 3. TPO, in all its forms, has been strongly condemned by UEFA (6) and FIFPro, the international organisation representing professional footballers. UEFA President Michel Platini believes that “we have returned to a form of slavery from the past” (7) and called on FIFA President Joseph Blatter to show the “political courage” to tackle the problem of “third-party ownership of players”, which constitutes a “serious danger” to the football world (8). Another argument concerns the opacity of these companies, which are often based in tax havens, and the difficulty of identifying the person who controls them (9). “UEFA and FIFPro condemn the loss of freedom for players and clubs” UEFA and FIFPro also condemn the loss of freedom for players and clubs. One example is the case of Marco Rojo, who was transferred in 2014 from Sporting (POR) to Manchester United (ENG) for €20 million. Statements by Sporting President Bruno de Carvalho revealed that his club opposed the transfer and that it had only gone through because of pressure from Doyen Sports, which held 75% of the player’s economic rights (10). Finally, they also criticise the possibility that investors owning too many players on the pitch could influence the proper conduct of a match… The opponents of TPO have largely been heard, and FIFA has in turn taken a position on these practices. New regulations “in order to protect the integrity of football and players” 1. At the FIFA Executive Committee meeting on 25 and 26/09/2014, it was decided to prohibit third-party ownership of players’ economic rights “in order to protect the integrity of football and players”. A transitional period was also agreed to allow compliance with the forthcoming text. The new provisions to be included in the Regulations on the Status and Transfer of Players were approved by the FIFA Executive Committee on 18 and 19/12/2014. They provide for: • The amendment of Article 18ter of those Regulations (see below), establishing “a prohibition on clubs and players entering into any agreement with a third party whereby that third party is entitled to participate in compensation payable in relation to the future transfer of a player, or is being assigned any rights in relation to a future transfer or transfer compensation”. • Entry into force on 01/05/2015. • A transitional period under which “agreements covered by the prohibition which were concluded before 01/05/2015 may remain valid until their ordinary contractual expiry date. However, any agreement subject to the prohibition signed between 01/01 and 30/04/2015 may not have a contractual duration of more than one year from signature” (11). Article 18ter of the FIFA Regulations on the Status and Transfer of Players © FIFA “Reactions of the principal stakeholders” These new FIFA regulations soon prompted reactions from the principal stakeholders: on the one hand, those opposing the text, namely the Spanish, Portuguese and South American professional leagues and “third parties”; on the other, those supporting the new FIFA regulations, including UEFA and FIFPro. 2. During January 2015, the Spanish and Portuguese professional football leagues, which are highly active in TPO, wrote to FIFA announcing their intention to take the matter to the European Commission (12). They then complained to the European Commission (13) about FIFA’s decision to prohibit third-party ownership of players and requested corresponding penalties. Their claims are based on the following grounds (14): • Under European Union case law, sporting organisations such as FIFA are regarded as economic operators for the purposes of competition rules. The internal rules and decisions adopted by the international federation must therefore comply with European competition law. • There is a breach of the competition rules in the Treaty on the Functioning of the European Union (TFEU), notably Article 101 on anti-competitive agreements and Article 102 on abuse of a dominant position (see below). • There is an infringement of the European Union’s fundamental freedoms: freedom of establishment, freedom to provide services, freedom of movement for workers and free movement of capital. Articles 101 and 102 TFEU (Treaty on the Functioning of the European Union) Article 101 TFEU (formerly Article 81 TEC): 1. The following shall be prohibited as incompatible with the internal market: all agreements between undertakings, decisions by associations of undertakings and concerted practices which may affect trade between Member States and which have as their object or effect the prevention, restriction or distortion of competition within the internal market, and in particular those which: (a) directly or indirectly fix purchase or selling prices or any other trading conditions; (b) limit or control production, markets, technical development, or investment; (c) share markets or sources of supply; (d) apply dissimilar conditions to equivalent transactions with other trading parties, thereby placing them at a competitive disadvantage; (e) make the conclusion of contracts subject to acceptance by the other parties of supplementary obligations which, by their nature or according to commercial usage, have no connection with the subject of such contracts. 2. Any agreements or decisions prohibited pursuant to this Article shall be automatically void. 3. The provisions of paragraph 1 may, however, be declared inapplicable in the case of: — any agreement or category of agreements between undertakings; — any decision or category of decisions by associations of undertakings; — any concerted practice or category of concerted practices; which contributes to improving the production or distribution of goods or to promoting technical or economic progress, while allowing consumers a fair share of the resulting benefit, and which does not: (a) impose on the undertakings concerned restrictions which are not indispensable to the attainment of these objectives; (b) afford such undertakings the possibility of eliminating competition in respect of a substantial part of the products in question. Article 102 TFEU (formerly Article 82 TEC): Any abuse by one or more undertakings of a dominant position within the internal market or in a substantial part of it shall be prohibited as incompatible with the internal market in so far as it may affect trade between Member States. Such abuse may, in particular, consist in: (a) directly or indirectly imposing unfair purchase or selling prices or other unfair trading conditions; (b) limiting production, markets or technical development to the prejudice of consumers; (c) applying dissimilar conditions to equivalent transactions with other trading parties, thereby placing them at a competitive disadvantage; (d) making the conclusion of contracts subject to acceptance by the other parties of supplementary obligations which, by their nature or according to commercial usage, have no connection with the subject of such contracts. “To compete with leagues receiving greater broadcasting revenues” Indeed, overturning the prohibition on TPO is crucial for these leagues, since clubs make extensive use of the practice to finance substantial recruitment campaigns and meet their wage bills. TPO also enables these leagues to compete with those receiving greater broadcasting revenues, such as the Premier League, thereby helping to maintain the quality of the sporting spectacle. Atlético Madrid, for example, financed the strengthening of its squad through TPO with a view to winning titles and securing a larger share of broadcasting rights. This successful strategy enabled it to win La Liga in 2014 and reach the Champions League final in the same year. The Spanish and Portuguese professional football leagues advance arguments along four principal lines (15): • “The decision to prohibit TPO constitutes an economic agreement restricting the economic freedom of clubs, players and third parties, without any justification or proportionality.” • “This decision harms clubs, principally those with limited economic resources, by preventing them from sharing with third parties the economic rights of the professional players in their squads and from managing their financial obligations prudently.” • The decision harms “the development of dozens of players whose professional careers have depended on third parties’ human, technical and economic resources”. • TPO has been used “legitimately in the vast majority of professional leagues throughout the world until now”. “A conflict of rules in Spain” The Spanish professional league’s challenge may also be explained by the Royal Spanish Football Federation’s immediate incorporation of the FIFA rules into its own regulations on 29/12/2014 (16). However, as at the date of writing, the National Sports Council (17) has not approved those regulations, so the prohibition on TPO has not entered the Spanish legal order. There is therefore currently a conflict between FIFA’s regulations and Spanish law. 3. Doyen Sports Investments Ltd (18), a subsidiary of Doyen Capital LLP and one of the main investment funds using third-party ownership of players, commenced proceedings before the Paris Tribunal de grande instance on 20/03/2015 against the French Football Federation, the French Professional Football League, UEFA and FIFA, challenging the prohibition on TPO. The fund challenges both FIFA Circular no. 1464 of 22/12/2014 and Article 221 of the LFP’s administrative regulations (see below), arguing that both provisions breach European law, notably Articles 101 and 102 TFEU. Article 221 of the LFP General Regulations Assignment or acquisition of a player’s proprietary rights A club may not enter into an agreement with legal persons, other than another club, or with natural persons, the effect of which is directly or indirectly to assign or acquire, wholly or partly and for the benefit of such persons, proprietary rights arising from the determination of the various payments to which it may be entitled upon the transfer of one or more of its players. A breach of the first paragraph of this Article shall be punishable by a fine imposed on the offending club of at least the amount of the sums improperly paid, and by disciplinary sanctions against its directors. It may also result in restrictions on the registration, or the non-registration, of new contracts for one or more seasons. The DNCG (National Directorate of Management Control) has jurisdiction over breaches of the rule laid down in the first paragraph of this Article. 4. UEFA and FIFPro, which support the new FIFA regulations, have also decided to refer the matter to the European Commission to have third-party ownership of players declared unlawful. FIFPro considers that TPO “gives parasites every opportunity to manipulate players for their own profit” and “infringes a fundamental human right, under which individuals are free to move and decide where to offer their labour” (19). 5. Under EU case law, restrictive [sporting] rules may be regarded as legitimate, despite constituting an obstacle [to players’ freedom of movement], provided that the means used to achieve the objective pursued are proportionate (20). “Regulation could have been considered instead of a blanket prohibition” It will therefore be necessary to demonstrate proportionality between the objective pursued, namely “the integrity of football and players” (21), and the means used, namely a complete and general prohibition. Instead of a blanket prohibition, regulation could have been considered to limit these third parties’ power of influence. For example, a percentage cap could be placed on the share of economic rights granted to third-party investors, both for an individual player and across a club’s entire squad. In any event, whatever the European Commission decides, its decision will be eagerly awaited and is likely to be only the first stage in a lengthy legal battle. 6. It should be noted that these new FIFA regulations will have little impact on France, which, like England and Poland, has already adopted national rules regulating or, as applicable, prohibiting TPO (22). “TPO permitted in France as security?” Article 221 of the LFP Administrative Regulations prohibits the assignment or acquisition of economic rights. Conversely, this wording could permit French clubs to use TPO as security. Consequently, as Patricia Moyersoen quite rightly points out, “it is inaccurate to count France among the countries prohibiting every type of third-party ownership transaction” (23). Since settled French case law holds that national law prevails over any regulations issued by an international federation (24), third parties may still be able to use TPO as security in France. 7. Far from giving up, and anticipating any future decision, some have already found ways to circumvent the prohibition on TPO and remain involved in the football economy: “Investment funds are considering acquiring stakes in clubs rather than directly acquiring players’ economic rights” • Investment funds are considering moving away from acquiring players’ economic rights directly through contracts with clubs and instead acquiring equity stakes in clubs, another means of acquiring players’ rights. In this way, they would move from the status of “third party” to that of “club”, without breaching Article 18ter of the FIFA Regulations on the Status and Transfer of Players. To maximise profits, funds are likely to target low-cost clubs so as to be able to acquire players (25). Players belonging, for example, to club A would then be loaned to club B, which, as under TPO, would not have had the resources to buy them. The player, having increased in value, could then be transferred to club C, and the resulting income would be shared according to the agreed arrangements, in any event allowing club A, and therefore the fund, to reap the rewards. • Some also suggest that “third parties” could act as investment banks, lending money directly to clubs to finance player transfers (26). • Finally, others see new opportunities in FIFA’s deregulation of the “players’ agents” market, which now allows anyone to act as an “intermediary” (27), subject to any national restrictions, opportunities which “third parties” will undoubtedly exploit… ---------------------------------------------------------- Notes: 1. Article 18bis of the FIFA Regulations, version in force until 31/03/2015: No club shall enter into a contract which enables any other party or third party to acquire the ability to influence, in employment and transfer-related matters, its independence, its policies or the performance of its teams. 2. CAS/2004/A/635 – Espanyol de Barcelona, S.A.D. v. Club Atlético Vélez Sarsfield, and CAS 2004/A/662 RCD Mallorca, S.A.D. v. Club Atlético Lanús. 3. www.Bloomberg.com, FIFA Ban on Third-Party Soccer Player Investment to Start in May. 4. Source: CDES – Centre for Sports Law and Economics http://www.cdes.fr/ 5. Article 13 of the FIFA Regulations on the Status and Transfer of Players: A contract between a professional and a club may only be terminated upon expiry of the term of the contract or by mutual agreement. 6. UEFA President’s Report 2013/2012, Next Challenges, p. 74. 7. Michel Platini’s answer to a question from Paris SG coach Laurent Blanc, question-and-answer session organised by UEFA on YouTube. 8. President’s opening address, 38th UEFA Congress, March 2014, Astana. 9. President’s opening address, cited above. 10. http://www.sofoot.com/le-sporting-en-croisade-contre-le-tpo-192384.html http://www.theguardian.com/football/2014/sep/10/sporting-lisbonthird-party-ownership-attack-marcos-rojo-manchester-united 11. FIFA Circular no. 1464 of 22/12/2014 on TPO. 12. http://futbol.as.com/futbol/2015/01/19/primera/1421675096_529743.html 13. Press release dated 09/02/2015, http://www.lfp.es/ 14. http://www.lfp.es/ 15. http://www.ligaportugal.pt/ 16. Circular no. 24 of 29/12/2014, http://cdn1.sefutbol.com/sites/default/files/pdf/circulares/document_1.pdf 17. Under the Spanish legal order, a sporting federation’s regulatory provision requires final approval by the National Sports Council before entering into force. http://iusport.com/not/5297/los-fondos-de-inversion-nuevoconflicto-entre-el-consejo-la-liga-y-la-rfef 18. http://www.doyensports.com/ 19. www.fifpro.org, FIFPro-UEFA step up their attack on TPO. 20. ECJ, 13/04/2000, Lehtonen, Case C-176/96. 21. FIFA Executive Committee of 25 and 26/09/2014, cited above. 22. See Article 221 of the LFP General Regulations, cited above. 23. La Lettre de l’Officiel juridique du Sport, no. 88, October 2014. 24. Conseil d’État, 23/06/1989, Bunoz, no. 101894; and Conseil d’État, 2 February 2006, no. 289701. 25. ICCS Journal, March/April 2015, vol. 3 no. 1. 26. Sports Law Newsletter, no. 3, November 2014, Morais Leita, Calvao Telas, Soares Da Silva & Associados Sociedadde de Advogados. 27. Definition of an intermediary in the FIFA Regulations on Working with Intermediaries: “A natural or legal person who, for a fee or free of charge, represents players and/or clubs in negotiations with a view to concluding an employment contract or represents clubs in negotiations with a view to concluding a transfer agreement.” Joëlle Monlouis Date of birth: 14/01/1980 – MBA, IAE, Université Paris I Panthéon-Sorbonne – DEA (M2) in Market Law, Université de Montpellier – Maîtrise (M1) in Business Law, Université Paris I Panthéon-Sorbonne --- – Business Law/Sports Law – Registered on the Register of Lawyers Acting as Sports Agents – Member of the Statutes and Regulations Committee of the Ligue de Football de Paris Île-de-France – Lecturer in Sports Law at Université Paris I Panthéon-Sorbonne --- Cabinet Joëlle Monlouis 11, boulevard de Sébastopol 75001 Paris Tel.: 06 10 60 42 95 Fax: 01 70 24 77 75 www.monlouis-avocat.fr Career From Until Cabinet Joëlle Monlouis 2013 Present Founding partner Paris Bar 2007 Present Lawyer View the profile on the website Profile no. 5975, created on 15/09/14 at 16:07 – Updated on 08/03/15 at 20:28 Downloads – FIFA: Circular no. 1468, published on 23/01/2015 – FIFA’s six questions and answers on TPO (in English) – FIFA Regulations on the Status and Transfer of Players (2015 edition) Related reading – Ligue 2 match-fixing: the relationship between criminal and disciplinary proceedings (J. Monlouis, lawyer) – Spain: “We support the regulation of TPO because it attracts capital” (Javier Tebas) – Third-party ownership of players: UEFA and FIFPro complaint to the European Commission – What the new FIFA regulations on “intermediaries” will change on 01/04/2015 (Joëlle Monlouis, lawyer) – “For English-style governance, with a federation and a commercial company, the UCPF” (J.-M. Aulas) – Spain: “A completely false debate about TPO, driven by English lobbies” (J. Tebas, LFP) – TPO: the Spanish and Portuguese leagues challenge the prohibition before the European Commission – Third-party ownership of players: FIFA sets 01/05/2015 as the date the prohibition comes into force – Third-party ownership of players: “I am going to invest in France” (Nelio Lucas, Doyen Sports) Read in the dossiers – Tank TPO Send to a friend Contact the editorial team about this article Contacts Your account Editorial team Receive your login details Send us your news, photos Settings and initiatives. 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