The Evolution and Prohibition of Third-Party Ownership in Football

Until FIFA outlawed third-party ownership of players’ economic rights (TPO) in December 2014, TPO was a prevalent financial model mostly employed by teams with less financial capabilities in comparison to richer clubs, and thus having to rely on external investors to participate in the transfer market.

Understanding TPO Arrangements
A typical TPO arrangement involves an investor providing money to a football club, either in connection with a transfer or when the team was usually short of cash, in exchange for a portion of a certain player’s future transfer value. When the player is then transferred to a new club, the transfer fee would be shared between the club and the investor according to the terms of the agreement. The business strategy is founded on the investors’ expectation that the player would improve his football talents, resulting in an increase in his market value and future transfer price.

FIFA’s Initial Restrictions on TPO
FIFA partially prohibited third-party interference (TPI) in the 2001 version of the RSTP. According to Art. 17.2 of the first edition, “Entitlement to compensation cannot be assigned to a third party.” Although the provision is limited to compensation for contract breaches without reasonable cause, it demonstrates that FIFA was hesitant to grant third parties power over transfer or contract-related remuneration. The TPI prohibition was later modified in 2008 with the addition of Art. 18bis, Third-party influence on clubs. The rule stipulates that no club shall enter into a contract that gives the club or a third party the potential to influence employment and transfer-related matters, and that violations of the restriction may result in disciplinary proceedings from the FIFA Disciplinary Committee. The restriction on TPI seldom resulted in FIFA investigations, despite the fact that agreements between clubs and investors permitted the prospect of investors influencing player transfers.

The Use of TPO in Club Transfer Strategies
The usage of TPI/TPO agreements has been a significant aspect of a number of clubs’ transfer strategies, particularly in South America and Southern Europe. FC Porto is one of the clubs that has successfully utilized TPO as part of their transfer policy. With the help of investors, the club has acquired a number of excellent players, especially from South America. The players were nurtured and subsequently deployed in the UEFA Champions League and UEFA Europa League, garnering the attention of clubs ready to spend huge transfer fees to get these individuals. Radamel Falcao, who Porto purchased from River Plate in 2009 for EUR 5.5 million and sold two years later for EUR 40 million, is one example of a player involved in this type of trade. Another case in point is Hulk, whom Porto purchased from Tokyo Verdy for EUR 5.5 million in 2008 and sold for EUR 40 million in 2012.

Risks and Issues of TPO
The biggest issue that could pop up as a result of this policy is concerns about conflicts of interest for those who own shares in the player’s economic rights and have official or informal control over the club or player in question. Teams might also become overly reliant on such financing, with investors profiting from successful players rather than the clubs themselves.

Many risks are associated with the practice of TPO: risks related to the opacity of investors, who are beyond the control of football regulatory bodies and can freely and without any restrictions dispose of their investments; risks of endangering professional freedom and player rights because the investor may influence the transfer of players in a speculative interest; risks of conflicts of interest, even match-fixing or match-manipulation, as the same investor can influence the transfer of players in a speculative interest. These rules do not restrict clubs from utilizing specific sources of money to attract players; rather, they prohibit specific financing strategies that give the investor leverage over a club’s independence and policy. Because FIFA has no control over investors, it will be impossible to fulfill the bans’ goal.

Notable Violations of TPO Rules
Very popular violations of the TPO Rules include FC Twente’s TPO agreements with football investment company Doyen Sports. Doyen Sports are no newbies to this kind of arrangement as they were also in a similar agreement with the Belgian side FC Seraing. FC Twente was banned from playing in the Dutch top division for a while. Seraing had a 3-window transfer ban and a fine of about CHF 150,000 to pay.

FIFA’s Ban on TPO
The campaign against third-party investors was pushed up in December 2014, when FIFA declared that Third-Party Ownership (TPO) will be prohibited beginning in May 2015, adopting Art. 18ter. Existing TPO agreements, on the other hand, were permitted to continue until they expired. Articles 18bis and 18ter now exist in the RSTP, further reinstating FIFA’s commitment to eradicating TPOs in football contracts. This is also one of the motives behind the creation of the FIFA Clearing House – to ensure that financial exchanges regarding the transfer of players are properly monitored.

The prohibition of third-party ownership marks FIFA’s commitment to maintaining the integrity and independence of football clubs. By implementing Articles 18bis and 18ter, and creating the FIFA Clearing House to monitor financial exchanges, FIFA aims to ensure transparent and fair player transfers. This move protects the rights of players and clubs while minimizing the risks associated with external investors’ influence.

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